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Two simple tests of the trend hypothesis under time-varying variance

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  • Yang, Yang
  • Wang, Shaoping

Abstract

This paper investigates the effects of time-varying variance on the linear trend tests proposed by Harvey et al. (2007) (HLT) and Perron and Yabu (2009) (PY) and finds time-varying variance results in obviously different null distributions. We propose two new robust linear trend tests. An empirical application highlights the usefulness of our tests.

Suggested Citation

  • Yang, Yang & Wang, Shaoping, 2017. "Two simple tests of the trend hypothesis under time-varying variance," Economics Letters, Elsevier, vol. 156(C), pages 123-128.
    • Handle: RePEc:eee:ecolet:v:156:y:2017:i:c:p:123-128
    DOI: 10.1016/j.econlet.2017.04.030
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    References listed on IDEAS

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    1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    2. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2009. "Simple, Robust, And Powerful Tests Of The Breaking Trend Hypothesis," Econometric Theory, Cambridge University Press, vol. 25(4), pages 995-1029, August.
    3. Alejandro Justiniano & Giorgio E. Primiceri, 2008. "The Time-Varying Volatility of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 98(3), pages 604-641, June.
    4. David I. Harvey & Neil M. Kellard & Jakob B. Madsen & Mark E. Wohar, 2010. "The Prebisch-Singer Hypothesis: Four Centuries of Evidence," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 367-377, May.
    5. Perron, Pierre & Yabu, Tomoyoshi, 2009. "Estimating deterministic trends with an integrated or stationary noise component," Journal of Econometrics, Elsevier, vol. 151(1), pages 56-69, July.
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    9. 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.
    10. James H. Stock & Mark W. Watson, 2005. "Implications of Dynamic Factor Models for VAR Analysis," NBER Working Papers 11467, National Bureau of Economic Research, Inc.
    11. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2007. "A simple, robust and powerful test of the trend hypothesis," Journal of Econometrics, Elsevier, vol. 141(2), pages 1302-1330, December.
    12. Jansson, Michael, 2002. "Consistent Covariance Matrix Estimation For Linear Processes," Econometric Theory, Cambridge University Press, vol. 18(6), pages 1449-1459, December.
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    Cited by:

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    More about this item

    Keywords

    Linear trend; Time-varying variance; Unit root; Robust test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: 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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