Modified Stationarity Tests With Data-Dependent Model-Selection Rules |
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Authors: | S J Leybourne B P M HcCabe |
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Institution: | 1. Department of Economics , University of Nottingham , Nottingham , NG7 2RD , United Kingdom;2. Faculty of Commerce and Business Administration , University of British Columbia , Vancouver , V6T 1Z2 , Canada |
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Abstract: | We describe some simple methods for improving the performance of stationarity tests (i.e., tests that have a stationary null and a unit-root alternative). Specifically, we increase the rate of convergence of the test under the unit-root alternative from O p(T) to O p (T 2), then suggest an optimal method of selecting the order of the autoregressive component in the fitted autoregressive integrated moving average model on which the test is based. Simulation evidence suggests that these modifications work well. We apply the modified procedure to U.S. monthly macroeconomic data and uncover new evidence of a unit root in unemployment. |
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Keywords: | Moving average model Stationarity test Unit root |
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