A critical value function approach, with an application to persistent time-series

Marcelo Moreira, Rafael Mourão and Humberto Ataíde Moreira

No 778, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Researchers often rely on the t-statistic to make inference on parameters in statistical models. It is common practice to obtain critical values by simulation techniques. This paper proposes a novel numerical method to obtain an approximately similar test. This test rejects the null hypothesis when the test statistic islarger than a critical value function (CVF) of the data. We illustrate this procedure when regressors are highly persistent, a case in which commonly-used simulation methods encounter dificulties controlling size uniformly. Our approach works satisfactorily, controls size, and yields a test which outperforms the two other known similar tests.

Date: 2016-06-06
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-net
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Citations: View citations in EconPapers (2)

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Working Paper: A critical value function approach, with an application to persistent time-series (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:778

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