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| Main Authors: | , |
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| Format: | Preprint |
| Published: |
2024
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2410.10749 |
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| _version_ | 1866908915044712448 |
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| author | Kılınç, Mustafa R. Massmann, Michael |
| author_facet | Kılınç, Mustafa R. Massmann, Michael |
| contents | This paper introduces a test for fractional integration in a model that possibly contains smooth deterministic trends. We model the trend component using a Chebyshev polynomial and specify the short-run dynamics semi-parametrically, accommodating a broad class of possibly nonlinear processes, including those with conditional heteroskedasticity. We use a local Whittle approach for constructing a Lagrange multiplier test statistic and for constructing a frequency-domain information criterion for the selection of the order of the Chebyshev polynomial. We show that widely used time-domain information criteria are generally inconsistent for the true order, whereas our frequency-domain criterion remains robust under both short- and long-memory behaviour. Monte Carlo simulations and an empirical application to the UK Great Ratios support our theoretical findings. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2410_10749 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Testing the order of fractional integration when smooth deterministic trends are possibly present Kılınç, Mustafa R. Massmann, Michael Econometrics This paper introduces a test for fractional integration in a model that possibly contains smooth deterministic trends. We model the trend component using a Chebyshev polynomial and specify the short-run dynamics semi-parametrically, accommodating a broad class of possibly nonlinear processes, including those with conditional heteroskedasticity. We use a local Whittle approach for constructing a Lagrange multiplier test statistic and for constructing a frequency-domain information criterion for the selection of the order of the Chebyshev polynomial. We show that widely used time-domain information criteria are generally inconsistent for the true order, whereas our frequency-domain criterion remains robust under both short- and long-memory behaviour. Monte Carlo simulations and an empirical application to the UK Great Ratios support our theoretical findings. |
| title | Testing the order of fractional integration when smooth deterministic trends are possibly present |
| topic | Econometrics |
| url | https://arxiv.org/abs/2410.10749 |