The Performance of Lag Selection and Detrending Methods for HEGY Seasonal Unit Root Tests

Tomás del Barrio Castro, Denise Osborn and Robert Taylor

Econometric Reviews, 2016, vol. 35, issue 1, 122-168

Abstract: This paper analyzes two key issues for the empirical implementation of parametric seasonal unit root tests, namely generalized least squares (GLS) versus ordinary least squares (OLS) detrending and the selection of the lag augmentation polynomial. Through an extensive Monte Carlo analysis, the performance of a battery of lag selection techniques is analyzed, including a new extension of modified information criteria for the seasonal unit root context. All procedures are applied for both OLS and GLS detrending for a range of data generating processes, also including an examination of hybrid OLS-GLS detrending in conjunction with (seasonal) modified AIC lag selection. An application to quarterly U.S. industrial production indices illustrates the practical implications of choices made.

Date: 2016
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Working Paper: The Performance of Lag Selection and Detrending Methods for HEGY Seasonal Unit Root Tests (2012)
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DOI: 10.1080/07474938.2013.807710

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