A robust version of the KPSS test based on indicators |
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Authors: | Robert M de Jong Christine Amsler Peter Schmidt |
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Institution: | 1. Department of Economics, Ohio State University, 429 Arps Hall, 1945 N. High Street, Columbus OH 43210;2. Department of Economics, Michigan State University, 101 Marshall-Adams Hall, East Lansing, MI 48824-1038 |
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Abstract: | This paper proposes a test of the null hypothesis of stationarity that is robust to the presence of fat-tailed errors. The test statistic is a modified version of the so-called KPSS statistic. The modified statistic uses the “sign” of the data minus the sample median, whereas KPSS used deviations from means. This “indicator” KPSS statistic has the same limit distribution as the standard KPSS statistic under the null, without relying on assumptions about moments, but a different limit distribution under unit root alternatives. The indicator test has lower power than standard KPSS when tails are thin, but higher power when tails are fat. |
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Keywords: | C22 C32 |
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