The impact of the initial condition on covariate augmented unit root tests

Chrystalleni Aristidou, David Harvey and Stephen Leybourne ()

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

Abstract: We examine the behaviour of OLS-demeaned/detrended and GLS-demeaned/detrended unit root tests that employ stationary covariates, as proposed by Hansen (1995) and Elliott and Jansson (2003), respectively, in situations where the magnitude of the initial condition of the time series under consideration may be non-negligible. We show that the asymptotic power of such tests is very sensitive to the initial condition; OLS- and GLS-based tests achieve relatively high power for large and small magnitudes of the initial condition, respectively. Combining information from both types of test via a simple union of rejections strategy is shown to effectively capture the higher power available across all initial condition magnitudes.

Keywords: Unit root tests; stationary covariates; initial condition uncertainty; asymptotic power. (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-ecm and nep-ets
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Related works:
Journal Article: The Impact of the Initial Condition on Covariate Augmented Unit Root Tests (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgts:16/01

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