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Reducing size distortions of parametric stationarity tests

Markku Lanne and Pentti Saikkonen ()

No 2000,12, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: The use of asymptotic critical values in stationarity tests against the alternative of a unit rot process is known to lead to overrejections in finite samples when the considered process is stationary but highly persistent. We claim that in recent parametric tests this is caused by estimation errors which result when the autoregressive parameters used to describe the short-run dynamics of the process are replaced by estimators. We suggest a modification that corrects for these errors and show by simulation that the modified test works reasonably well whenn the persistence is moderate and there is no time trend in the model. An empirical illustration withinflation rate data is provided.

Keywords: stationarity test; inflation rate (search for similar items in EconPapers)
JEL-codes: C12 C22 E31 (search for similar items in EconPapers)
Date: 2000
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Journal Article: Reducing size distortions of parametric stationarity tests (2003) Downloads
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