A Simple Modification to Improve the Finite Sample Properties of Ng and Perron’s Unit Root Tests

The tests introduced by Ng and Perron (2001, Econometrica) have the drawback that for non-local alternatives the power can be very small. The aim of this note is to point out an easy solution to this power reversal problem, which in addition leads to tests having an exact size even closer to nominal size. It involves using OLS instead of GLS detrended data when constructing the modified information criterion.

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Year of publication:	2006-02
Authors:	Perron, Pierre ; Qu, Zhongjun
Institutions:	Department of Economics, Boston University

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Series:	Boston University - Department of Economics - Working Papers Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number WP2006-010 10 pages longages
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005795219