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Impacts of the initial observation on unit root tests using recursive demeaning and detrending procedures

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  • Meng, Ming
  • Lee, Hyejin
  • Cho, Myeong Hyeon
  • Lee, Junsoo

Abstract

The use of recursive demeaning and detrending procedures in unit root tests has been popular in the literature, since they lead to more precise estimation of the persistence parameter and greater power in unit root tests. However, we find that unit root tests using these recursive procedures tend to lose power significantly when the initial value is very large.

Suggested Citation

  • Meng, Ming & Lee, Hyejin & Cho, Myeong Hyeon & Lee, Junsoo, 2013. "Impacts of the initial observation on unit root tests using recursive demeaning and detrending procedures," Economics Letters, Elsevier, vol. 120(2), pages 195-199.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:2:p:195-199
    DOI: 10.1016/j.econlet.2013.03.033
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    References listed on IDEAS

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    Cited by:

    1. Born Benjamin & Demetrescu Matei, 2015. "Recursive Adjustment for General Deterministic Components and Improved Cointegration Rank Tests," Journal of Time Series Econometrics, De Gruyter, vol. 7(2), pages 143-179, July.

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    More about this item

    Keywords

    Initial condition; Recursive demeaning; Recursive detrending; Unit root tests;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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