A
Note onTesting for Unit Roots in the Unobservable Trend Component of a
Structural Model
Eliana González & Fabio Nieto
Abstract
Testing for unit roots is a common practice in
observable stochastic processes and there is abundant literature on this topic.
However, sometimes, one is faced with the same problem but in the case where
the processes of interest are latent or unobservable. In this paper, empirical
distributions of the usual unit-root test statistics are obtained for the trend
component of some particular structural models, which are based on optimal
predictions (as the observed data) of the trend stochastic process. It is found
that these statistical tests tend to be most powerful than the usual
Dickey-Fuller tests.
Key words:
Structural
models, Unit roots, Unobservable process.
PDF (English)