A simple, robust and powerful test of the trend hypothesis

David Harvey, Stephen Leybourne () and Robert Taylor

Discussion Papers from University of Nottingham, Granger Centre for Time Series Econometrics

Abstract: In this paper we develop a simple test procedure for a linear trend which does not require knowledge of the form of serial correlation in the data, is robust to strong serial correlation, and has a standard normal limiting null distribution under either I(0) or I(1) shocks. In contrast to other available robust linear trend tests, our proposed test achieves the Gaussian asymptotic local power envelope in both the I(0) and I(1) cases. For near- I(1) errors our proposed procedure is conservative and a modification for this situation is suggested. An estimator of the trend parameter, together with an associated confidence interval, which is asymptotically efficient, again regardless of whether the shocks are I(0) or I(1), is also provided.

Keywords: Linear trend; strong serial correlation; asymptotic normality; power enveloope; unit root tests; stationarity tests (search for similar items in EconPapers)
Date: 2006-09
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Journal Article: A simple, robust and powerful test of the trend hypothesis (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgts:06/01

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