The Fragility of the KPSS Stationarity Test

Nunzio Cappuccio () and Diego Lubian
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Nunzio Cappuccio: Department of Economics and Management, University of Padova

No 67/2009, Working Papers from University of Verona, Department of Economics

Abstract: Stationarity tests exhibit extreme size distortions if the observable process is stationary yet highly persistent. In this paper we provide a theoretical explanation for the size distortion of the KPSS test for DGPs with a broad range of first order autocorrelation coefficient. Considering a near-integrated, nearly stationary process we show that the asymptotic distribution of the test contains an additional term, which can potentially explain the amount of size distortion documented in previous simulation studies.

Keywords: KPSS stationarity test; size distortion; nearly white noise nearly integrated model (search for similar items in EconPapers)
JEL-codes: C01 C22 (search for similar items in EconPapers)
Pages: 20
Date: 2009-12
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (3)

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Journal Article: The fragility of the KPSS stationarity test (2010)
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