Wednesday, July 12, 2017

The Bandwidth for the KPSS Test

Recently, I received an email from a follower of this blog, who asked:
"May I know what is the difference between the bandwidth of Newey-West and Andrews for the KPSS test. It is because when I test the variable with Newey-West, it is I(2), but then I switch the bandwidth to Andrews, it becomes I(1)."
First of all, it's worth noting that the unit root and stationarity tests that we commonly use can be very sensitive to the way in which they're constructed and applied. An obvious example arises with the choice of the maximum lag length when we're using the Augmented Dickey-Fuller test. Another example would be the treatment of the drift and trend components when using that test, So, the situation that's mentioned in the email above is not unusual, in general terms.

Now, let's look at the specific question that's been raised here.

Saturday, July 1, 2017

Canada Day Reading List

I was tempted to offer you a list of 150 items, but I thought better of it!

  • Hamilton, J. D., 2017. Why you should never use the Hodrick-Prescott filter. Mimeo., Department of Economics, UC San Diego.
  • Jin, H. and S. Zhang, 2017. Spurious regression between long memory series due to mis-specified structural breaks. Communications in Statistics - Simulation and Computation, in press.
  • Kiviet, J. F., 2016. Testing the impossible: Identifying exclusion restrictions.Discussion Paper 2016/03, Amsterdam School of Economics, University of Economics.
  • Lenz, G. and A. Sahn, 2017. Achieving statistical significance with covariates. BITSS Preprint (H/T  Arthur Charpentier)
  • Sephton, P., 2017. Finite sample critical values of the generalized KPSS test. Computational Economics, 50, 161-172.
© 2017, David E. Giles