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MODIFIED KPSS TESTS FOR NEAR INTEGRATION

David Harris, Stephen Leybourne (steve.leybourne@nottingham.ac.uk) and Brendan McCabe

Econometric Theory, 2007, vol. 23, issue 2, 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 Müller (2005, Journal of Econometrics 128, 195–213). The test also has good asymptotic and finite-sample properties relative to the point optimal tests of Müller (2005) and Elliott and Müller (2006, Journal of Econometrics 135, 285–310).

Date: 2007
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