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Seasonal Unit Root Tests and The Role of Initial Conditions
Oleh:
Harvey, David I.
;
Leybourne, Stephen J.
;
Taylor, A.M. Robert
Jenis:
Article from Journal  ilmiah internasional
Dalam koleksi:
The Econometrics Journal vol. 11 no. 3 (2008)
,
page 409.
Topik:
Seasonal Unit Root
;
Tests
;
Role
;
Initial Conditions
Fulltext:
409.pdf
(1.19MB)
Ketersediaan
Perpustakaan Pusat (Semanggi)
Nomor Panggil:
EE39.4
Nontandon:
1 (dapat dipinjam: 0)
Tandon:
tidak ada
Lihat Detail Induk
Isi artikel
In the context of regressionbased (quarterly) seasonal unit root tests, we examine the impact of initial conditions (one for each quarter) of the process on test power. We investigate the behaviour of the wellknown OLS detrended HEGY seasonal unit root tests together with their quasidifferenced (QD) detrended analogues, when the initial conditions are not asymptotically negligible. We show that the asymptotic local power of a test at a given frequency depends on the value of particular linear (frequency specific) combinations of the initial conditions. Consistent with previous findings in the nonseasonal case, the QD detrended test at a given spectral frequency dominates on power for relatively small values of this combination, while the OLS detrended test dominates for larger values. Since, in practice, the seasonal initial conditions are not observed, in order to maintain good power across both small and large initial conditions, we develop tests based on a union of rejections decision rule; rejecting the unit root null at a given frequency (or group of frequencies) if either of the relevant QD and OLS detrended HEGY tests rejects. This procedure is shown to perform well in practice, simultaneously exploiting the superior power of the QD (OLS) detrended HEGY test for small (large) combinations of the initial conditions. Moreover, our procedure is particularly adept in the seasonal context since, by design, it exploits the power advantage of the QD (OLS) detrended HEGY tests at a particular frequency when the relevant initial condition is small (large) without imposing that same method of detrending on tests at other frequencies.
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