On the behaviour of Phillips-Perron tests in the presence of persistent cycles

Tomás Del Barrio Castro, Paulo M M Rodrigues, A. M Robert Taylor

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

In this paper, we analyse the impact of persistent cycles on the well-known semi-parametric unit root tests of Phillips and Perron (1988, Biometrika, Vol. 75, pp. 335-346). It is shown, both analytically and through Monte Carlo simulations, that the presence of complex (near) unit roots can severely bias the size properties of these tests. Given the popularity of these tests with applied researchers and their routine presence in most econometric software packages, the results presented in this paper suggest that practitioners should treat the outcomes of these tests with some caution when applied to data which display a strong cyclical component.

Original languageEnglish
Pages (from-to)495-511
Number of pages17
JournalOxford Bulletin of Economics and Statistics
Volume77
Issue number4
DOIs
Publication statusPublished - 1 Aug 2015

Keywords

  • COVARIANCE-MATRIX ESTIMATION
  • TIME-SERIES REGRESSION
  • UNIT-ROOT TESTS;
  • MODELS
  • REAL

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