NEARLY OPTIMAL TEST FOR LONG-RUN PREDICTABILITY WITH NEARLY INTEGRATED REGRESSORS

Natalia Sizova

Econometric Theory, 2021, vol. 37, issue 1, 82-137

Abstract: We develop a method for long-run predictability testing in series Y by a persistent series X. We consider a class of tests based on the long-run behavior of these series that are robust to short-run dynamics and attempt to attain the highest possible power. The test is based on the Whittle approximation to the likelihood ratio that is adjusted to remain accurate across a range of persistence in X. We verify the properties of this test in small simulations and compare this test against a group of recently proposed methods.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:cup:etheor:v:37:y:2021:i:1:p:82-137_3

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