Powerful Trend Function Tests that are Robust to Strong Serial Correlation with an Application to the Prebisch-Singer Hypothesis

34 Pages Posted: 23 May 2003

See all articles by Helle Bunzel

Helle Bunzel

Iowa State University - Department of Economics

Timothy J. Vogelsang

Cornell University

Date Written: April 2003

Abstract

In this paper we propose tests for hypothesis regarding the parameters of a the deterministic trend function of a univariate time series. The tests do not require knowledge of the form of serial correlation in the data and they are robust to strong serial correlation. The data can contain a unit root and the tests still have the correct size asymptotically. The tests we analyze are standard heteroskedasticity autocorrelation (HAC) robust tests based on nonparametric kernel variance estimators. We analyze these tests using the small-b asymptotic framework recently proposed by Kiefer and Vogelsang (2002). This analysis allows us to analyze the power properties of the tests with regards to bandwidth and kernel choices. Our analysis shows that among popular kernels, there are specific kernel and bandwidth choices that deliver tests with maximal power within a specific class of tests. We apply the recommended tests to the logarithm of a net barter terms of trade series and we find that this series has a statistically significant negative slope. This finding is consistent with the well known Prebisch-Singer hypothesis. Because our tests are robust to strong serial correlation or a unit root in the data, our results in support of the Prebisch-Singer hypothesis are relatively strong.

Keywords: HAC Estimator, Fixed-b Asymptotics, Power Envelope, Unit Root, Prebisch-Singer, Nearly Integrated, Partial Sum, Deterministic Trend, Linear Trend

JEL Classification: C32, F2

Suggested Citation

Bunzel, Helle and Vogelsang, Timothy, Powerful Trend Function Tests that are Robust to Strong Serial Correlation with an Application to the Prebisch-Singer Hypothesis (April 2003). Available at SSRN: https://ssrn.com/abstract=397520 or http://dx.doi.org/10.2139/ssrn.397520

Helle Bunzel (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

Timothy Vogelsang

Cornell University ( email )

Ithaca, NY 14853
United States

0 References

    0 Citations