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Trend and Initial Condition in Stationarity Tests: The Asymptotic Analysis

20 Pages Posted: 14 Dec 2012 Last revised: 19 Nov 2013

Anton Skrobotov

Russian Presidential Academy of National Economy and Public Administration (RANEPA) - IPEA Macroeconomic Forecasting

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Date Written: October 1, 2013

Abstract

In this paper we investigate the behavior of stationarity tests proposed by Muller (2005) and Harris et al. (2007) with uncertainty over the trend and/or initial condition. As for different magnitudes of local trend and initial value different tests are efficient, we propose following Harvey et al. (2008) the decision rule based on the rejection of null hypothesis for multiple tests. Also we propose the modification of this decision rule using additional information obtained through pre-testing about magnitudes of local trend and/or initial value. The resulting modification has good size properties under both types of uncertainty.

Keywords: Stationarity test, KPSS test, uncertainty over the trend, uncertainty over the initial condition, size distortion, intersection of rejection decision rule

JEL Classification: C12, C22

Suggested Citation

Skrobotov, Anton, Trend and Initial Condition in Stationarity Tests: The Asymptotic Analysis (October 1, 2013). Available at SSRN: https://ssrn.com/abstract=2189430 or http://dx.doi.org/10.2139/ssrn.2189430

Anton Skrobotov (Contact Author)

Russian Presidential Academy of National Economy and Public Administration (RANEPA) - IPEA Macroeconomic Forecasting ( email )

Vernadsky Avenue 82
Moscow, 119571
Russia

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