Rejection Probabilities for a Battery of Unit-Root Tests

Florin Maican and Richard J. Sweeney
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Richard J. Sweeney: Georgetown University, Washington, D.C.

No 568, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: If the researcher tests each model in a battery at the a % significance level, the probability that at least one test rejects is generally larger than a %. For five unit-root models, this paper uses Monte Carlo simulation and the inclusion-exclusion principle to show for a %=5% for each test, the probability that at least one test rejects is 16.2% rather than the upper-bound of 25% from the Bonferroni inequality. It also gives estimated probabilities that any combination two, three, four or five models all reject.

Keywords: Real Exchange Rates; Unit root; Monte Carlo; Break models (search for similar items in EconPapers)
JEL-codes: C15 C22 C32 C33 E31 F31 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2013-06-03
New Economics Papers: this item is included in nep-ecm and nep-ets
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