Is the observed persistence spurious? A test for fractional integration versus short memory and structural breaks

Laura Mayoral

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Although it is commonly accepted that most macroeconomic variables are nonstationary, it is often difficult to identify the source of the non-stationarity. In particular, it is well-known that integrated and short memory models containing trending components that may display sudden changes in their parameters share some statistical properties that make their identification a hard task. The goal of this paper is to extend the classical testing framework for I(1) versus I(0)+ breaks by considering a a more general class of models under the null hypothesis: non-stationary fractionally integrated (FI) processes. A similar identification problem holds in this broader setting which is shown to be a relevant issue from both a statistical and an economic perspective. The proposed test is developed in the time domain and is very simple to compute. The asymptotic properties of the new technique are derived and it is shown by simulation that it is very well-behaved in finite samples. To illustrate the usefulness of the proposed technique, an application using inflation data is also provided.

Keywords: Fractional integration; structural breaks; unit roots; trends (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Is the Observed Persistence Spurious? A Test for Fractional Integration versus Short Memory and Structural Breaks (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:956

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