Since 2014
Broken mean stationarity and the validity of the Dickey-Fuller test: the case of controlled inflation
Brazilian Review of Econometrics
View Archive Info| Field | Value | |
| Title |
Broken mean stationarity and the validity of the Dickey-Fuller test: the case of controlled inflation
Broken mean stationarity and the validity of the Dickey-Fuller test: the case of controlled inflation |
|
| Creator |
Ventosa-Santaulária, Daniel; Departamento de Economía y Finanzas, DCEA-Campus Marfil Fracc
Gómez-Zaldívar, Manuel; Departamento de Economía y Finanzas Universidad de Guanajuato |
|
| Subject |
Dickey-Fuller test; Mean Stationary Process; Structural Breaks
C12; C22; E31 Dickey-Fuller test; Mean Stationary Process; Structural Breaks C12; C22; E31 |
|
| Description |
This article proves the asymptotic efficiency of the Dickey Fuller (DF) test when the data generating process of the variable under consideration is in fact mean stationary with breaks. Monte Carlo simulations show that asymptotic properties remain valid for sample sizes of practical interest. Our results complement those already available in the literature, which can be summarized as follows: DF-type tests (i) over-accept the null hypothesis of unit root when there is a break in the trend-stationary process, and; (ii) over-reject the null hypothesis when there is a level/trend break in the unit root process. We illustrate the performance of the DF-t test by studying inflation rate series, a variable that should be stationary if the monetary authority follows an effective monetary policy: shocks are short-lived, therefore, inflation fluctuates randomly around specific goals
This article proves the asymptotic efficiency of the Dickey Fuller (DF) test when the data generating process of the variable under consideration is in fact mean stationary with breaks. Monte Carlo simulations show that asymptotic properties remain valid for sample sizes of practical interest. Our results complement those already available in the literature, which can be summarized as follows: DF-type tests (i) over-accept the null hypothesis of unit root when there is a break in the trend-stationary process, and; (ii) over-reject the null hypothesis when there is a level/trend break in the unit root process. We illustrate the performance of the DF-t test by studying inflation rate series, a variable that should be stationary if the monetary authority follows an effective monetary policy: shocks are short-lived, therefore, inflation fluctuates randomly around specific goals |
|
| Publisher |
Sociedade Brasileira de Econometria
|
|
| Date |
2009-05-01
|
|
| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion — — |
|
| Format |
application/pdf
|
|
| Identifier |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/2693
10.12660/bre.v29n12009.2693 |
|
| Source |
Brazilian Review of Econometrics; Vol 29, No 1 (2009); 1-16
Brazilian Review of Econometrics; Vol 29, No 1 (2009); 1-16 1980-2447 |
|
| Language |
eng
|
|
| Relation |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/2693/1825
|
|