Stationarity Tests for Irregularly Spaced Observations and the Effects of Sampling Frequency on Power

Robert Taylor and Fabio Busetti

No 494, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: In this paper, starting from continuous-time local level unobserved components models for stock and flow data we derive locally best invariant (LBI) stationarity tests for data available at potentially irregularly spaced points in time. We demonstrate that the form of the LBI test differs between stock and flow variables. In cases where the data are observed at regular intervals throughout the sample we show that the LBI tests for stock and flow data both reduce to the form of the standard stationarity test in the discrete-time local level model. Here we also show that the asymptotic local power of the LBI test increases with the sampling frequency in the case of stock, but not flow, variables. Moreover, for a fixed time span we show that the LBI test for stock (flow) variables is (is not) consistent against a fixed alternative as the sampling frequency increases to infinity. We also consider the case of mixed frequency data in some detail, providing asymptotic critical values for the LBI tests for both stock and flow variables, together with a finite sample power study. Our results suggest that tests which ignore the infra-period aspect of the data involve rather small losses in efficiency relative to the LBI test in the case of flow variables, but can result in significant losses of efficiency when analysing stock variables.

Keywords: Stock and flow variables; local level model; unit root; LBI test; temporal aggregation (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-ecm and nep-ets
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http://repec.org/esFEAM04/up.11462.1077557485.pdf (application/pdf)

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Journal Article: STATIONARITY TESTS FOR IRREGULARLY SPACED OBSERVATIONS AND THE EFFECTS OF SAMPLING FREQUENCY ON POWER (2005)
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