GLS Detrending, Efficient Unit Root Tests and Structural Change
By Pierre Perron, G. Rodríguez. 2003
196 citations recorded by the source corpus.
We extend the class of M-tests for a unit root analyzed by Perron and Ng (1996) and Ng and Perron (1997) to the case where a change in the trend function is allowed to occur at an unknown time. These tests M(GLS) adopt the GLS detrending approach of Dufour and King (1991) and Elliott, Rothenberg and Stock (1996) (ERS). Following Perron (1989), we consider two models : one allowing for a change in slope and the other for both a change in intercept and slope. We derive the asymptotic distribution of the tests as well as that of the feasible point optimal tests PT(GLS) suggested by ERS. The asymptotic critical values of the tests are tabulated. Also, we compute the non-centrality parameter used for the local GLS detrending that permits the tests to have 50% asymptotic power at that value. We show that the M(GLS) and PT(GLS) tests have an asymptotic power function close to the power envelope. An extensive simulation study analyzes the size and power in finite samples under various methods to select the truncation lag for the autoregressive spectral density estimator. An empirical application is also provided.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/fa1e9897970c6ca505a967f428d1f527bd281b16
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- David I. Harvey
- S. Leybourne
- Alan M. Taylor
- Josep Lluís Carrion‐i‐Silvestre
- Pierre Perron
- Robert J. Taylor
- Dukpa Kim
- Giuseppe Cavaliere
Citations in the corpus
- Trends and random walks in macroeconomic time series: A reappraisal (2012, background): “4 Vogelsang (1999), Perron and Rodriguez (2003) and Haldrup and Sansó (2008) suggested procedures for detecting multiple additive outliers in nonstationary time series.”
- Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power (2001, methodology): “Size improvements obtained using the MIC compared to fixing k at k* are even larger when the number of deterministic components increases (see Perron and Rodriguez (1998) for the case of a trend with a change in slope).”
- Dealing with Structural Breaks (2005, background): “The reader is referred to Bai (1997a) and Bai and Perron (1998, 2003a), in particular.”
- TESTING FOR A UNIT ROOT IN THE PRESENCE OF A POSSIBLE BREAK IN TREND (2009, background): “Both procedures ensure that the correctly sized (near-) efficient unit root test that allows (does not allow) for a break in trend is applied in the limit when a trend break does (does not) occur.”
- GLS-BASED UNIT ROOT TESTS WITH MULTIPLE STRUCTURAL BREAKS UNDER BOTH THE NULL AND THE ALTERNATIVE HYPOTHESES (2009, methodology): “This testing problem has recently been addressed by Vogelsang (2001) and Perron and Yabu (2009).”
- GLS-based unit root tests with multiple structural breaks both under the null and the alternative hypotheses (2007, unknown): “Following Kim and Perron (2006), the next step is to derive the limit distribution of the unit root tests when this estimate of the break fractions is used instead of the true values.”