Wavelet Improvement of the Over-rejection of Unit root test under GARCH errors
Yushu Li and
No 2009:7, CAFO Working Papers from Linnaeus University, Centre for Labour Market Policy Research (CAFO), School of Business and Economics
In this paper, we use the wavelet technique to improve the over-rejection problem of the traditional Dickey-Fuller test for unit root when the data suffers from GARCH (1,1) effect. The logic is based on that the wavelet spectrum decomposition can separate out information of different frequencies in the data series. We prove that the asymptotic distribution of our test is similar to the traditional Dickey-Fuller(1979 and 1981) type of tests. The small sample distribution of the new test is assessed by means of Monte Carlo simulation. An empirical example with data on immigration to Sweden during the period 1950 to 2000 is used to illustrate the test. The results reveal that using the traditional Dickey-Fuller type of test, the unit root is rejected while our wavelet improved test shows the opposite result.
Keywords: Dickey-Fuller test; GARCH (1:1); Wavelet spectrum decomposition; MODWT (search for similar items in EconPapers)
JEL-codes: C15 C52 (search for similar items in EconPapers)
Pages: 9 pages
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:vxcafo:2009_007
Access Statistics for this paper
More papers in CAFO Working Papers from Linnaeus University, Centre for Labour Market Policy Research (CAFO), School of Business and Economics Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University, SE 351 95 Växjö, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Andreas Mångs ().