Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68525
Authors: 
Vogelsang, Timothy J.
Wagner, Martin
Year of Publication: 
2011
Series/Report no.: 
Reihe Ökonomie, Institut für Höhere Studien 272
Abstract: 
We extend fixed-b asymptotic theory to the nonparametric Phillips-Perron (PP) unit root tests. We show that the fixed-b limits depend on nuisance parameters in a complicated way. These non-pivotal limits provide an alternative theoretical explanation for the well known finite sample problems of PP tests. We also show that the fixed-b limits depend on whether deterministic trends are removed using one-step or two-step approaches, contrasting the asymptotic equivalence of the one- and two-step approaches under a consistency approximation for the long run variance estimator. Based on these results we introduce modified PP tests that allow for fixed-b inference. The theoretical analysis is cast in the framework of near-integrated processes which allows to study the asymptotic behavior both under the unit root null hypothesis as well as for local alternatives. The performance of the original and modified tests is compared by means of local asymptotic power and a small simulation study.
Subjects: 
nonparametric kernel estimator
long run variance
detrending
one-step
two-step
JEL: 
C12
C13
C32
Document Type: 
Working Paper

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