Publication:
Optimal Fractional Dickey–Fuller tests

Thumbnail Image
Identifiers
URI: http://hdl.handle.net/10016/4527
ISSN: 1368-4221
DOI: 10.1111/j.1368-423x.2006.00195.x
Files
optimal_velasco_TEJ_2006_ps.pdf (155.16 KB)
Publication date
2006
Defense date
Authors
Advisors
Tutors
Journal Title
Journal ISSN
Volume Title
Publisher
Blackwell
Impact
Google Scholar
Export
Research Projects
Organizational Units
Journal Issue
Abstract
This article analyzes the fractional Dickey–Fuller (FDF) test for unit roots recently introduced by Dolado, Gonzalo and Mayoral (2002 Econometrica 70, 1963–2006) within a more general setup. These authors motivate their test with a particular analogy with the Dickey–Fuller test, whereas we interpret the FDF test as a class of tests indexed by an auxiliary parameter, which can be chosen to maximize the power of the test.Within this framework, we investigate optimality aspects of the FDF test and show that the version of the test proposed by these authors is not optimal. For the white noise case, we derive simple optimal FDF tests based on consistent estimators of the true degree of integration. For the serial correlation case, optimal augmented FDF (AFDF) tests are difficult to implement since they depend on the short-term component. Hence, we propose a feasible procedure that automatically optimizes a prewhitened version of the AFDF test and avoids this problem.
Description
Keywords
serial correlation, long memory, unit roots
Bibliographic citation
The Econometrics Journal. 2006, vol. 9, nº 3, p. 492-510
Collections
DE - Artículos de Revistas
Economists Online