Modified Unit Root Tests with Nuisance Parameter Free Asymptotic Distributions

Gaowen Wang ()
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Gaowen Wang: Takming University of Science and Technology

Methodology and Computing in Applied Probability, 2017, vol. 19, issue 2, 519-538

Abstract: Abstract It is well-known that the asymptotic distributions of the Dickey-Fuller (DF) tests for a unit root with linear process errors are not free of nuisance parameters. In this paper, we introduce a consistent estimator for the nuisance parameters and then use it to modify the DF tests, denoted as R-tests. Under fairly mild moment and summability conditions on the errors, we show that the asymptotic distributions of the R-tests are of the same as the Dickey-Fuller distributions. In Monte Carlo experiments, the R-tests are shown to have improved size properties.

Keywords: Block-sums; Linear process; Size distortion; Unit root; 62M10; 62P20; 91B84 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11009-016-9498-3

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