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Searching for fractional evidence using combined unit root tests

Francesc Marmol

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: It has become a fully accepted rule in applied work that rejection of both the difference stationarity and trend stationarity null hypotheses, could imply the possibility that the underlying time series behaves as a fractionally integrated process. In this paper we prove this claim in a rigorous way by showing the consistency of the customary Dickey-Fuller and KPSS tests against fractional alternatives. It is shown that the combined use of both tests only achieves consistency if two-tailed tests are implemented.

Keywords: inflation; series; Fractionally; integrated; processes; DF test; KPSS; test; finite; sample; analysis (search for similar items in EconPapers)
Date: 1998-06
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