MODIFIED KPSS TESTS FOR NEAR INTEGRATION

David Harris, Stephen Leybourne and Brendan McCabe

Econometric Theory, 2007, vol. 23, issue 02, pages 355-363

Abstract: This note suggests a simple modification to the Kwiatkowski, Phillips, Schmidt, and Shin (1992, Journal of Econometrics, 54, 159 178) test (KPSS test) so that it is applicable to testing the null hypothesis of near integration against a unit root alternative. The modified KPSS test is shown not to suffer from the asymptotic size distortion problems of the original KPSS test that are described by M ller (2005, Journal of Econometrics 128, 195 213). The test also has good asymptotic and finite-sample properties relative to the point optimal tests of M ller (2005) and Elliott and M ller (2006, Journal of Econometrics 135, 285 310).

Date: 2007

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