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Breaking deterministics, test size and the efficient Wald test for fractional unit roots

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  • P. S. Sephton

Abstract

Lobato and Velasco (2007) introduced a test for a unit root against fractional alternatives with good power and performance properties. The purpose of this article is to examine the size of the test in the presence of level and trend breaks under the null hypothesis. The results suggest that test size remains relatively unaffected by level breaks but that the test can be undersized when there are breaking trends.

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  • P. S. Sephton, 2012. "Breaking deterministics, test size and the efficient Wald test for fractional unit roots," Applied Economics Letters, Taylor & Francis Journals, vol. 19(1), pages 83-85, January.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:1:p:83-85
    DOI: 10.1080/13504851.2011.568382
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    1. Mayoral, Laura, 2006. "Testing I(1) against I(d) alternatives with Wald Tests in the presence of deterministic components," UC3M Working papers. Economics we20061221, Universidad Carlos III de Madrid. Departamento de Economía.
    2. Dimitrios Vougas, 2008. "On the size of the DF-GLS test," Applied Economics Letters, Taylor & Francis Journals, vol. 15(10), pages 777-780.
    3. Juan J. Dolado & Jesus Gonzalo & Laura Mayoral, 2002. "A Fractional Dickey-Fuller Test for Unit Roots," Econometrica, Econometric Society, vol. 70(5), pages 1963-2006, September.
    4. Ignacio N Lobato & Carlos Velasco, 2007. "Efficient Wald Tests for Fractional Unit Roots," Econometrica, Econometric Society, vol. 75(2), pages 575-589, March.
    5. Peter Sephton, 2008. "On the finite sample size and power of the generalized KPSS test in the presence of level breaks," Applied Economics Letters, Taylor & Francis Journals, vol. 15(11), pages 833-843.
    6. Bart Hobijn & Philip Hans Franses & Marius Ooms, 2004. "Generalizations of the KPSS‐test for stationarity," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 58(4), pages 483-502, November.
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