# Seasonal unit root tests and the role of initial conditions

*David I. Harvey*,
*Stephen J. Leybourne* and
*Robert Taylor*

*Econometrics Journal*, 2008, vol. 11, issue 3, pages 409-442

**Abstract:**
In the context of regression-based (quarterly) seasonal unit root tests, we examine the impact of initial conditions (one for each quarter) of the process on test power. We investigate the behaviour of the well-known OLS detrended HEGY seasonal unit root tests together with their quasi-differenced (QD) detrended analogues, when the initial conditions are not asymptotically negligible. We show that the asymptotic local power of a test at a given frequency depends on the value of particular linear (frequency specific) combinations of the initial conditions. Consistent with previous findings in the nonseasonal case, the QD detrended test at a given spectral frequency dominates on power for relatively small values of this combination, while the OLS detrended test dominates for larger values. Since, in practice, the seasonal initial conditions are not observed, in order to maintain good power across both small and large initial conditions, we develop tests based on a union of rejections decision rule; rejecting the unit root null at a given frequency (or group of frequencies) if either of the relevant QD and OLS detrended HEGY tests rejects. This procedure is shown to perform well in practice, simultaneously exploiting the superior power of the QD (OLS) detrended HEGY test for small (large) combinations of the initial conditions. Moreover, our procedure is particularly adept in the seasonal context since, by design, it exploits the power advantage of the QD (OLS) detrended HEGY tests at a particular frequency when the relevant initial condition is small (large) without imposing that same method of detrending on tests at other frequencies. Copyright The Author(s). Journal compilation Royal Economic Society 2008

**Date:** 2008

**References:** Add references at CitEc

**Citations** View citations in EconPapers (1) Track citations by RSS feed

**Downloads:** (external link)

http://www.blackwell-synergy.com/doi/abs/10.1111/j.1368-423X.2008.00258.x link to full text (text/html)

Access to full text is restricted to subscribers.

**Related works:**

Working Paper: Seasonal unit root tests and the role of initial conditions (2008)

This item may be available elsewhere in EconPapers: Search for items with the same title.

**Export reference:** BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text

**Persistent link:** http://EconPapers.repec.org/RePEc:ect:emjrnl:v:11:y:2008:i:3:p:409-442

**Ordering information:** This journal article can be ordered from

http://www.ectj.org

Access Statistics for this article

Econometrics Journal is currently edited by *Richard J. Smith*, *Oliver Linton*, *Pierre Perron*, *Jaap Abbring* and *Marius Ooms*

More articles in Econometrics Journal from Royal Economic Society Contact information at EDIRC.

Series data maintained by Wiley-Blackwell Digital Licensing ().