IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpem/0402007.html
   My bibliography  Save this paper

Deterministic Seasonality in Dickey-Fuller Tests: Should We Care?

Author

Listed:
  • Artur C. B. da Silva Lopes

    (ISEG-UTL & CEMAPRE)

Abstract

This paper investigates the properties of Dickey-Fuller tests for seasonally unadjusted quarterly data when deterministic seasonality is present but it is neglected in the test regression. While for the random walk case the answer is straightforward, an extensive Monte Carlo study has to be performed for more realistic processes and testing strategies. The most important conclusion is that the common perception that deterministic seasonality has nothing to do with the long-run properties of the data is incorrect. Further numerical evidence on the shortcomings of the general-to-specific t-sig lag selection method is also presented.

Suggested Citation

  • Artur C. B. da Silva Lopes, 2004. "Deterministic Seasonality in Dickey-Fuller Tests: Should We Care?," Econometrics 0402007, EconWPA, revised 18 Mar 2004.
  • Handle: RePEc:wpa:wuwpem:0402007 Note: Type of Document - pdf; prepared on Win98; pages: 22. version 2.0
    as

    Download full text from publisher

    File URL: http://econwpa.repec.org/eps/em/papers/0402/0402007.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pierre Perron & Gabriel RodrÌguez, 2003. "Searching For Additive Outliers In Nonstationary Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(2), pages 193-220, March.
    2. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, pages 589-611.
    3. Kiviet, Jan F & Phillips, Garry D A, 1992. "Exact Similar Tests for Unit Roots and Cointegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 349-367, August.
    4. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series,in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
    5. Murray, Christian J. & Nelson, Charles R., 2000. "The uncertain trend in U.S. GDP," Journal of Monetary Economics, Elsevier, pages 79-95.
    6. Franses, Philip Hans, 1996. "Periodicity and Stochastic Trends in Economic Time Series," OUP Catalogue, Oxford University Press, number 9780198774549.
    7. G. William Schwert, 1988. "Tests For Unit Roots: A Monte Carlo Investigation," NBER Technical Working Papers 0073, National Bureau of Economic Research, Inc.
    8. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, pages 215-238.
    9. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237.
    10. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters,in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc.
    11. Franses, Philip Hans & Haldrup, Niels, 1994. "The Effects of Additive Outliers on Tests for Unit Roots and Cointegration," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 471-478, October.
    12. Abeysinghe, Tilak, 1994. "Deterministic seasonal models and spurious regressions," Journal of Econometrics, Elsevier, pages 259-272.
    13. Taylor, A M Robert, 2000. " The Finite Sample Effects of Deterministic Variables on Conventional Methods of Lag-Selection in Unit Root Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, pages 293-304.
    14. Artur C. B. da Silva Lopes, 2003. "The order of integration for quarterly macroeconomic time series: A simple testing strategy," Empirical Economics, Springer, pages 783-794.
    15. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-280, July.
    16. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
    17. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, pages 1-27.
    18. Ghysels,Eric & Osborn,Denise R., 2001. "The Econometric Analysis of Seasonal Time Series," Cambridge Books, Cambridge University Press, number 9780521565882, November.
    19. Barsky, Robert B & Miron, Jeffrey A, 1989. "The Seasonal Cycle and the Business Cycle," Journal of Political Economy, University of Chicago Press, pages 503-534.
    20. Matei Demetrescu & Uwe Hassler, 2007. "Effect of neglected deterministic seasonality on unit root tests," Statistical Papers, Springer, pages 385-402.
    21. Paulo Rodrigues & Denise Osborn, 1999. "Performance of seasonal unit root tests for monthly data," Journal of Applied Statistics, Taylor & Francis Journals, pages 985-1004.
    22. Franses, Philip Hans & Hylleberg, Svend & Lee, Hahn S., 1995. "Spurious deterministic seasonality," Economics Letters, Elsevier, vol. 48(3-4), pages 249-256, June.
    23. Ghysels, Eric, 1990. "Unit-Root Tests and the Statistical Pitfalls of Seasonal Adjustment: The Case of U.S. Postwar Real Gross National Product," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 145-152, April.
    24. Rodrigues, Paulo M. M., 2000. "A note on the application of the DF test to seasonal data," Statistics & Probability Letters, Elsevier, pages 171-175.
    25. Ghysels, Eric & Perron, Pierre, 1993. "The effect of seasonal adjustment filters on tests for a unit root," Journal of Econometrics, Elsevier, pages 57-98.
    26. da Silva Lopes, Artur C. B., 2002. "The Order of Integration for Quarterly Macroeconomic Time series: a Simple Testing Strategy," Royal Economic Society Annual Conference 2002 55, Royal Economic Society.
    27. Francisco J. MartÎn-âlvarez & Victor J. Cano-FernÂndez & JosÊ J. CÂceres-HernÂndez, 1999. "The introduction of seasonal unit roots and cointegration to test index aggregation optimality: An application to a Spanish farm price index," Empirical Economics, Springer, pages 403-414.
    28. Pantula, Sastry G, 1991. "Asymptotic Distributions of Unit-Root Tests When the Process Is Nearly Stationary," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 63-71, January.
    29. Vogelsang, Timothy J & Perron, Pierre, 1998. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1073-1100, November.
    30. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, pages 1519-1554.
    31. Artur C. B. da Silva Lopes, 1999. "Spurious deterministic seasonality and autocorrelation corrections with quarterly data: Further Monte Carlo results," Empirical Economics, Springer, pages 341-359.
    32. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    33. Jürgen Wolters & Uwe Hassler, 2006. "Unit root testing," AStA Advances in Statistical Analysis, Springer;German Statistical Society, pages 43-58.
    34. Christine Lim & Michael McAleer, 2000. "A seasonal analysis of Asian tourist arrivals to Australia," Applied Economics, Taylor & Francis Journals, vol. 32(4), pages 499-509.
    35. Ghysels, Eric & Lee, Hahn S. & Noh, Jaesum, 1994. "Testing for unit roots in seasonal time series : Some theoretical extensions and a Monte Carlo investigation," Journal of Econometrics, Elsevier, pages 415-442.
    36. Kivilcim Metin & Ilker Muslu, 1999. "Money demand, the Cagan model, testing rational expectations vs adaptive expectations: The case of Turkey," Empirical Economics, Springer, pages 415-426.
    37. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-470, October.
    38. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. van Goor, Harm & Scholtens, Bert, 2014. "Modeling natural gas price volatility: The case of the UK gas market," Energy, Elsevier, vol. 72(C), pages 126-134.
    2. Matei Demetrescu & Uwe Hassler, 2007. "Effect of neglected deterministic seasonality on unit root tests," Statistical Papers, Springer, pages 385-402.
    3. B. da Silva Lopes, Artur C., 2005. "Finite sample effects of pure seasonal mean shifts on Dickey-Fuller tests," MPRA Paper 125, University Library of Munich, Germany, revised May 2006.

    More about this item

    Keywords

    unit root; Dickey-Fuller tests; similar tests; seasonality; Monte Carlo;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:0402007. 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: (EconWPA). General contact details of provider: http://econwpa.repec.org .

    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 CitEc recognized a reference but did not link an item in RePEc 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.