IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Lag Length Selection for Unit Root Tests in the Presence of Nonstationary Volatility

  • Cavaliere Giuseppe
  • Phillips Peter C.B.
  • Smeekes Stephan
  • Taylor A.M. Robert

    (METEOR)

A number of recently published papers have focused on the problem of testing for a unit root inthe case where the driving shocks may be unconditionally heteroskedastic. These papers have,however, assumed that the lag length in the unit root test regression is a deterministic functionof the sample size, rather than data-determined, the latter being standard empirical practice. Inthis paper we investigate the finite sample impact of unconditional heteroskedasticity onconventional data-dependent methods of lag selection in augmented Dickey-Fuller type unit roottest regressions and propose new lag selection criteria which allow for the presence ofheteroskedasticity in the shocks. We show that standard lag selection methods show a tendency toover-fit the lag order under heteroskedasticity, which results in significant power losses in the(wild bootstrap implementation of the) augmented Dickey-Fuller tests under the alternative. Thenew lag selection criteria we propose are shown to avoid this problem yet deliver unit root testswith almost identical finite sample size and power properties as the corresponding tests based onconventional lag selection methods when the shocks are homoskedastic.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:4ec895ca-2aac-4a29-8523-d6ad63f98cec/datastreams/ASSET1/content
Our checks indicate that this address may not be valid because: 401 Unauthorized. If this is indeed the case, please notify (Charles Bollen)


Download Restriction: no

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 056.

as
in new window

Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:unm:umamet:2011056
Contact details of provider: Postal: P.O. Box 616, 6200 MD Maastricht
Phone: +31 (0)43 38 83 830
Web page: http://www.maastrichtuniversity.nl/Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Cavaliere, Giuseppe & Taylor, A.M. Robert, 2008. "Bootstrap Unit Root Tests For Time Series With Nonstationary Volatility," Econometric Theory, Cambridge University Press, vol. 24(01), pages 43-71, February.
  2. Giuseppe Cavaliere & A. M. Robert Taylor, 2009. "Bootstrap M Unit Root Tests," Econometric Reviews, Taylor & Francis Journals, vol. 28(5), pages 393-421.
  3. Cavaliere, Giuseppe & Taylor, A.M. Robert, 2009. "Heteroskedastic Time Series With A Unit Root," Econometric Theory, Cambridge University Press, vol. 25(05), pages 1228-1276, October.
  4. M Sensier & D van Dijk, 2003. "Testing for Volatility Changes in US Macroeconomic Time Series," Centre for Growth and Business Cycle Research Discussion Paper Series 36, Economics, The Univeristy of Manchester.
  5. Perron, Pierre & Qu, Zhongjun, 2007. "A simple modification to improve the finite sample properties of Ng and Perron's unit root tests," Economics Letters, Elsevier, vol. 94(1), pages 12-19, January.
  6. D van Dijk & D R Osborn & M Sensier, 2002. "Changes in Variability of the Business Cycle in the G7 Countries," Centre for Growth and Business Cycle Research Discussion Paper Series 16, Economics, The Univeristy of Manchester.
  7. Serena Ng & Pierre Perron, 2001. "A Note on the Selection of Time Series Models," Boston College Working Papers in Economics 500, Boston College Department of Economics.
  8. Smeekes Stephan & Taylor A. M. Robert, 2010. "Bootstrap Union Tests for Unit Roots in the Presence of Nonstationary Volatility," Research Memorandum 015, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  9. Richard, Patrick, 2009. "Modified fast double sieve bootstraps for ADF tests," Computational Statistics & Data Analysis, Elsevier, vol. 53(12), pages 4490-4499, October.
  10. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
  11. Brandan K. Beare, 2008. "Unit Root Testing with Unstable Volatility," Economics Series Working Papers 2008-WO6, University of Oxford, Department of Economics.
  12. Brendan K. Beare, 2008. "Unit Root Testing with Unstable Volatility," Economics Papers 2008-W06, Economics Group, Nuffield College, University of Oxford.
  13. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  14. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  15. Cavaliere, Giuseppe & Taylor, A.M. Robert, 2007. "Testing for unit roots in time series models with non-stationary volatility," Journal of Econometrics, Elsevier, vol. 140(2), pages 919-947, October.
  16. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  17. Yoosoon Chang & Joon Park, 2002. "On The Asymptotics Of Adf Tests For Unit Roots," Econometric Reviews, Taylor & Francis Journals, vol. 21(4), pages 431-447.
  18. Xu, Ke-Li & Phillips, Peter C. B., 2011. "Tilted Nonparametric Estimation of Volatility Functions With Empirical Applications," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 518-528.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2011056. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.