Unit Root Testing with Slowly Varying Trends
Econometrics
2020-09-15 v3
Abstract
A unit root test is proposed for time series with a general nonlinear deterministic trend component. It is shown that asymptotically the pooled OLS estimator of overlapping blocks filters out any trend component that satisfies some Lipschitz condition. Under both fixed- and small- block asymptotics, the limiting distribution of the t-statistic for the unit root hypothesis is derived. Nuisance parameter corrections provide heteroskedasticity-robust tests, and serial correlation is accounted for by pre-whitening. A Monte Carlo study that considers slowly varying trends yields both good size and improved power results for the proposed tests when compared to conventional unit root tests.
Keywords
Cite
@article{arxiv.2003.04066,
title = {Unit Root Testing with Slowly Varying Trends},
author = {Sven Otto},
journal= {arXiv preprint arXiv:2003.04066},
year = {2020}
}