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Modified Unit Root Tests with Nuisance Parameter Free Asymptotic Distributions

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  • Gaowen Wang

    (Takming University of Science and Technology)

Abstract

It is well-known that the asymptotic distributions of the Dickey-Fuller (DF) tests for a unit root with linear process errors are not free of nuisance parameters. In this paper, we introduce a consistent estimator for the nuisance parameters and then use it to modify the DF tests, denoted as R-tests. Under fairly mild moment and summability conditions on the errors, we show that the asymptotic distributions of the R-tests are of the same as the Dickey-Fuller distributions. In Monte Carlo experiments, the R-tests are shown to have improved size properties.

Suggested Citation

  • Gaowen Wang, 2017. "Modified Unit Root Tests with Nuisance Parameter Free Asymptotic Distributions," Methodology and Computing in Applied Probability, Springer, vol. 19(2), pages 519-538, June.
    • Handle: RePEc:spr:metcap:v:19:y:2017:i:2:d:10.1007_s11009-016-9498-3
    DOI: 10.1007/s11009-016-9498-3
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    References listed on IDEAS

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