Abstract
We analyze the behavior of widely used regression-based tests for seasonal unit roots when the shocks are serially correlated. We show, in the quarterly case, that the common assumption that serial correlation may be accommodated by augmenting the test regression with appropriate lagged seasonal differences is only partially correct. The limiting null distributions of t statistics for unit roots at the zero and Nyquist frequencies are corrected by the lag augmentation, but those of t statistics at the harmonic seasonal frequency are not. Fortunately, the joint F-type tests at the harmonic frequency, which are in widespread use, do remain pivotal and should therefore supplant the individual t statistics in applied work. That the latter are indeed badly behaved in finite samples, while the F-type tests are correctly sized, is demonstrated by a Monte Carlo experiment.
| Original language | English |
|---|---|
| Pages (from-to) | 374-379 |
| Number of pages | 6 |
| Journal | Journal of Business and Economic Statistics |
| Volume | 19 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Jul 2001 |
Keywords
- Seasonal unit-root tests
- Serially correlated shocks
ASJC Scopus subject areas
- Statistics and Probability
- Social Sciences (miscellaneous)
- Economics and Econometrics
- Statistics, Probability and Uncertainty
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