A Simple Modification to Improve the Finite Sample Properties of Ng and Perron’s Unit Root Tests

Pierre Perron () and Zhongjun Qu ()

No WP2006-010, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: The tests introduced by Ng and Perron (2001, Econometrica) have the drawback that for non-local alternatives the power can be very small. The aim of this note is to point out an easy solution to this power reversal problem, which in addition leads to tests having an exact size even closer to nominal size. It involves using OLS instead of GLS detrended data when constructing the modified information criterion.

New Economics Papers: this item is included in nep-cba, nep-ecm and nep-ets
Date: 2006-02
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Related works:
Journal Article: A simple modification to improve the finite sample properties of Ng and Perron's unit root tests (2007)
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