A simple test to distinguish between deterministic and stochastic trends in non-stationary time series

Mohamed Boutahar ()
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Mohamed Boutahar: I2M - Institut de Mathématiques de Marseille - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: For non-stationary times series, the main dificult is to identify the nature of non-stationarity. In macroeconomic and financial modelling, there are two kinds of non-stationarity. The first one is due to the presence of a deterministic trend and generally modeled by a d-order polynomial of time. The second is due to the presence of a stochastic trend which is modeled by integrating a stationary process up to a suitable order d. In this paper we propose a simple test to decide between these two kinds of trend. Simulations show that the test has a good empirical size and power. The test is finally applied to some real macroeconomic and financial datasets.

Keywords: Economic modelling; Hypothesis testing; Statistical test (search for similar items in EconPapers)
Date: 2024-11-18
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