Bootstrap Unit-Root Tests: Comparison and Extensions

31 Pages Posted: 29 Feb 2008

See all articles by Franz C. Palm

Franz C. Palm

University of Maastricht - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Stephan Smeekes

affiliation not provided to SSRN

Jean-Pierre Urbain

Maastricht University - Department of Economics

Date Written: 0000

Abstract

This study leads to the following conclusions: (i) augmented DF tests are always preferred to standard DF tests; (ii) the sieve bootstrap performs better than the block bootstrap; (iii) difference-based tests appear to have slightly better size properties, but residual-based tests appear more powerful. We show that two sieve bootstrap tests based on residuals remain asymptotically valid. In contrast to the literature which focuses on a comparison of the bootstrap tests with an asymptotic test, we compare the bootstrap tests among themselves using response surfaces for their size and power in a simulation study. In this article, we study and compare the properties of several bootstrap unit-root tests recently proposed in the literature. The tests are Dickey Fuller (DF) or Augmented DF, based either on residuals from an auto-regression and the use of the block bootstrap or on first-differenced data and the use of the stationary bootstrap or sieve bootstrap. We extend the analysis by interchanging the data transformations (differences vs. residuals), the types of bootstrap and the presence or absence of a correction for autocorrelation in the tests. We show that two sieve bootstrap tests based on residuals remain asymptotically valid. In contrast to the literature which focuses on a comparison of the bootstrap tests with an asymptotic test, we compare the bootstrap tests among themselves using response surfaces for their size and power in a simulation study. This study leads to the following conclusions: (i) augmented DF tests are always preferred to standard DF tests; (ii) the sieve bootstrap performs better than the block bootstrap; (iii) difference-based tests appear to have slightly better size properties, but residual-based tests appear more powerful.

Suggested Citation

Palm, Franz C. and Smeekes, Stephan and Urbain, Jean-Pierre, Bootstrap Unit-Root Tests: Comparison and Extensions (0000). Journal of Time Series Analysis, Vol. 29, Issue 2, pp. 371-401, March 2008, Available at SSRN: https://ssrn.com/abstract=1098436 or http://dx.doi.org/10.1111/j.1467-9892.2007.00565.x

Franz C. Palm (Contact Author)

University of Maastricht - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-(0)43-3883833 (Phone)
+31-(0)43-3258535 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Stephan Smeekes

affiliation not provided to SSRN

Jean-Pierre Urbain

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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