Monte Carlo Test for Stochastic Trend in Space State Models for the Location-Scale Family

Ivair Ramos Silva, Dulcidia Ernesto, Fernando Oliveira, Reinaldo Marques and Anderson Oliveira

Brazilian Review of Econometrics, 2021, vol. 40, issue 2

Abstract: In space state models for time series, a key point is the decision between modeling the trend of non-stationary processes through a deterministic or a stochastic term. The present paper introduces a Monte Carlo hypothesis test procedure to guide in such a decision. The method works for any time series distribution belonging to the location-scale family. The proposed method provides an alpha-level test for any time series of length greater than 3 and it does not demand assumptions on the distribution of the trend term when it is actually stochastic.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:40:y:2021:i:2:a:81082

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