SADDLEPOINT AND ESTIMATED SADDLEPOINT APPROXIMATIONS FOR OPTIMAL UNIT ROOT TESTS
Published online by Cambridge University Press: 25 March 2011
This paper provides a (saddlepoint) tail probability approximation for the distribution of an optimal unit root test. Under restrictive assumptions, Gaussianity, and known covariance structure, the order of error of the approximation is given. More generally, when innovations are a linear process in martingale differences, the estimated saddlepoint is proved to yield valid asymptotic inference. Numerical evidence, considered over a range of models, demonstrates some finite-sample superiority over approximations for a directly comparable test based on simulation of its limiting stochastic representation.
- Econometric Theory , Volume 27 , Issue 5: SPECIAL ISSUE ON BOOTSTRAP AND NUMERICAL METHODS IN TIME SERIES , October 2011 , pp. 1026 - 1047
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