Semi-Parametric Seasonal Unit Root Tests

Tomás del Barrio Castro, Paulo Rodrigues and Robert Taylor

No 72, DEA Working Papers from Universitat de les Illes Balears, Departament d'Economía Aplicada

Abstract: It is well known that (seasonal) unit root tests can be seriously affected by the presence of weak dependence in the driving shocks when this is not accounted for. In the non-seasonal case both parametric (based around augmentation of the test regression with lagged dependent variables) and semi-parametric (based around an estimator of the long run variance of the shocks) unit root tests have been proposed. Of these, the M class of unit root tests introduced by Stock (1999), Perron and Ng (1996) and Ng and Perron (2001), appear to be particularly successful, showing good finite sample size control even in the most problematic (near-cancellation) case where the shocks contain a strong negative moving average component. The aim of this paper is threefold. First we show the implications that neglected weak dependence in the shocks has on lag un-augmented versions of the well known regression-based seasonal unit root tests of Hylleberg et al. (1990). Second, in order to complement extant parametrically augmented versions of the tests of Hylleberg et al. (1990), we develop semi-parametric seasonal unit root test procedures, generalising the methods developed in the non-seasonal case to our setting. Third, we compare the finite sample size and power properties of the parametric and semi-parametric seasonal unit root tests considered. Our results suggest that the superior size/power trade-off offered by the M approach in the non-seasonal case carries over to the seasonal case.

Keywords: Seasonal unit roots; weak dependence; lag augmentation; long run variance estimator; demodulated process. (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2015
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: View citations in EconPapers (2)

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Related works:
Journal Article: SEMI-PARAMETRIC SEASONAL UNIT ROOT TESTS (2018)
Working Paper: Semi-Parametric Seasonal Unit Root Tests (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ubi:deawps:72

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