Fixed-smoothing Asymptotics and AsymptoticFandtTests in the Presence of Strong Autocorrelation

Yixiao Sun

A chapter in Essays in Honor of Peter C. B. Phillips, 2014, vol. 14, pp 23-63 from Emerald Group Publishing Limited

Abstract: New asymptotic approximations are established for the Wald and t statistics in the presence of unknown but strong autocorrelation. The asymptotic theory extends the usual fixed-smoothing asymptotics under weak dependence to allow for near-unit-root and weak-unit-root processes. As the locality parameter that characterizes the neighborhood of the autoregressive root increases from zero to infinity, the new fixed-smoothing asymptotic distribution changes smoothly from the unit-root fixed-smoothing asymptotics to the usual fixed-smoothing asymptotics under weak dependence. Simulations show that the new approximation is more accurate than the usual fixed-smoothing approximation.

Keywords: Autocorrelation robust test; fixed-smoothing asymptotics; local-to-unity; strong autocorrelation; weak unit root; C13; C14; C32; C51 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1108/S0731-905320140000033002

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