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Bootstrap Unit Root Tests
Author(s) -
Park Joon Y.
Publication year - 2003
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/1468-0262.00471
Subject(s) - unit root , mathematics , resampling , autoregressive model , series (stratigraphy) , asymptotic analysis , unit root test , statistics , cointegration , paleontology , biology
We consider the bootstrap unit root tests based on finite order autoregressive integrated models driven by iid innovations, with or without deterministic time trends. A general methodology is developed to approximate asymptotic distributions for the models driven by integrated time series, and used to obtain asymptotic expansions for the Dickey–Fuller unit root tests. The second‐order terms in their expansions are of stochastic orders O p ( n −1/4 ) and O p ( n −1/2 ), and involve functionals of Brownian motions and normal random variates. The asymptotic expansions for the bootstrap tests are also derived and compared with those of the Dickey–Fuller tests. We show in particular that the bootstrap offers asymptotic refinements for the Dickey–Fuller tests, i.e., it corrects their second‐order errors. More precisely, it is shown that the critical values obtained by the bootstrap resampling are correct up to the second‐order terms, and the errors in rejection probabilities are of order o ( n −1/2 ) if the tests are based upon the bootstrap critical values. Through simulations, we investigate how effective is the bootstrap correction in small samples.