Testing Integration of Macroeconomic Time Series in Transitional Socialist Economies. A Modification of Perron Test |
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Authors: | Krzysztof Rybinski |
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Institution: | (1) Department of Economics, University of Warsaw, ul. Dluga 44/50, Warsaw, Poland |
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Abstract: | The presence of structural breaks reduces the power of integration tests. A number of methods were suggested to improve the
statistical properties of integration tests in the presence of structural breaks. The most known are Perron tests, which allow
to test for the level of integration of time series with one structural break. Perron tests allow for two types of structural
breaks: additive outlier an innovative outlier. These tests are, however, not very useful in testing the level of integration
of macroeconomic time series in countries in transition from centrally-planned to market economy. In such case one should
expect two structural breaks to affect the time series: one at the beginning and one at the end of the transformation process.
Test that allows for two additive outlier type structural breaks in time series is developed in this paper. This test has
superior power as compared to standard Dickey-Fuller and Perron tests. This paper provides asymptotic distribution as well
as finite sample properties of proposed test. Therefore practitioners receive a reliable tool for analyzing macroeconomic
processes in transitional economies.
This revised version was published online in July 2006 with corrections to the Cover Date. |
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Keywords: | integration unit root tests structural breaks Monte Carlo response surface |
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