Local Power Functions of Tests for Double Unit Roots

UCSD Economics Discussion Paper No. 2000-12

33 Pages Posted: 1 Dec 2000

See all articles by Niels Haldrup

Niels Haldrup

Aarhus University, School of Economics and Management; CREATES

Peter M. Lildholdt

Bank of England - Monetary Analysis; Danske Bank

Date Written: June 2000

Abstract

The purpose of this paper is to characterize three commonly used double unit root tests in terms of their asymptotic local power. To this end, we study a class of nearly doubly integrated processes which in the limit will behave as a weighted integral of a double indexed Ornstein-Uhlenbeck process. Based on a numerical examination of the analytical distributions, a comparison of the tests is made via their asymptotic local power functions.

Keywords: Asymptotic Local Power Function, Brownian Motion, Ornstein-Uhlenbeck Process

JEL Classification: C12, C14, C22

Suggested Citation

Haldrup, Niels and Haldrup, Niels and Lildholdt, Peter M. and Lildholdt, Peter M., Local Power Functions of Tests for Double Unit Roots (June 2000). UCSD Economics Discussion Paper No. 2000-12, Available at SSRN: https://ssrn.com/abstract=237011 or http://dx.doi.org/10.2139/ssrn.237011

Niels Haldrup (Contact Author)

Aarhus University, School of Economics and Management ( email )

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CREATES ( email )

School of Economics and Management
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Peter M. Lildholdt

Bank of England - Monetary Analysis ( email )

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Danske Bank ( email )

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