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Regression-based seasonal unit root tests

Author

Listed:
  • Richard J. Smith
  • A. M. Robert Taylor
  • Tomas del Barrio Castro
Abstract
The contribution of this paper is three-fold. Firstly, a characterisation theorem of the sub-hypotheses comprising the seasonal unit root hypothesis is presented which provides a precise formulation of the alternative hypotheses against which regression-based seasonal unit root tests test. Secondly, it proposes regressionbased tests for the seasonal unit root hypothesis which allow a general seasonal aspect for the data and are similar both exactly and asymptotically with respect to initial values and seasonal drift parameters. Thirdly, limiting distribution theory is given for these statistics where, in contrast to previous papers in the literature, in doing so it is not assumed that unit roots hold at all of the zero and seasonal frequencies. This is shown to alter the large sample null distribution theory for regression t-statistics for unit roots at the complex frequencies, but interestingly to not affect the limiting null distributions of the regression t-statistics for unit roots at the zero and Nyquist frequencies and regression Fstatistics for unit roots at the complex frequencies. Our results therefore have important implications for how tests of the seasonal unit root hypothesis should be conducted in practice. Associated simulation evidence on the size and power properties of the statistics presented in this paper is given which is consonant with the predictions from the large sample theory.

Suggested Citation

  • Richard J. Smith & A. M. Robert Taylor & Tomas del Barrio Castro, 2007. "Regression-based seasonal unit root tests," Discussion Papers 07/05, University of Nottingham, Granger Centre for Time Series Econometrics.
    • Handle: RePEc:not:notgts:07/05
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    File URL: https://www.nottingham.ac.uk/research/groups/grangercentre/documents/07-05.pdf
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    References listed on IDEAS

    as
    1. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238.
    2. Burridge, Peter & Taylor, A M Robert, 2001. "On the Properties of Regression-Based Tests for Seasonal Unit Roots in the Presence of Higher-Order Serial Correlation," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 374-379, July.
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    8. Burridge, Peter & Robert Taylor, A. M., 2004. "Bootstrapping the HEGY seasonal unit root tests," Journal of Econometrics, Elsevier, vol. 123(1), pages 67-87, November.
    9. Ghysels, Eric & Lee, Hahn S. & Noh, Jaesum, 1994. "Testing for unit roots in seasonal time series : Some theoretical extensions and a Monte Carlo investigation," Journal of Econometrics, Elsevier, vol. 62(2), pages 415-442, June.
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