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Trend and Initial Condition in Stationarity Tests: The Asymptotic Analysis
Author(s) -
Skrobotov Anton
Publication year - 2015
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12057
Subject(s) - econometrics , mathematics , null hypothesis
In this article, we investigate the behaviour of stationarity tests proposed by Müller [ Journal of Econometrics (2005) Vol. 128, pp. 195–213] and Harris et al . [ Econometric Theory (2007) Vol. 23, pp. 355–363] with uncertainty over the trend and/or initial condition. As different tests are efficient for different magnitudes of local trend and initial condition, following Harvey et al . [ Journal of Econometrics (2012) Vol. 169, pp. 188–195], we propose decision rule based on the rejection of null hypothesis for multiple tests. Additionally, we propose a modification of this decision rule, relying on additional information about the magnitudes of the local trend and/or the initial condition that is obtained through pre‐testing. The resulting modification has satisfactory size properties under both uncertainty types.