Spurious Break

Nunes, Luís; Kuan, Chung‐Ming; Newbold, Paul

doi:10.1017/s0266466600009713

Cited by 67 publications

(34 citation statements)

References 24 publications

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“…In both cases, the fitted regression coefficients turn out to be statistically significant with probability one asymptotically and this is true even when robust standard errors that account for residual autocorrelation are used to assess significance [17]. Some related results have been shown to hold for trend breaks, fractional processes and regressions among such variables (e.g., [1,[11][12][13][14]28]) even when they are stochastically independent, the latter being the phenomenon originally examined in simulations by Granger and Newbold [6].…”

Section: No One Understands Trendsmentioning

confidence: 86%

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Challenges of trending time series econometrics

Phillips

2005

Mathematics and Computers in Simulation

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We discuss some challenges presented by trending data in time series econometrics. To the empirical economist there is little guidance from theory about the source of trend behavior and even less guidance about practical formulations. Moreover, recent proximity theorems [W. Ploberger, P.C.B. Phillips, Empirical limits for time series econometric models, Econometrica 71 (2003) 627-673] reveal that trends are more elusive to model empirically than stationary processes, with the upshot that optimal forecasts are also harder to estimate when the data involve trends. These limitations are implicitly acknowledged in much practical modeling and forecasting work, where adaptive methods are often used to help keep models on track as trends evolve. The paper discusses these broader issues and limitations of econometrics and offers some thoughts on new practical possibilities for data analysis in the absence of good theory models for trends. In particular, a new concept of coordinate cointegration is introduced and some new econometric methodology is suggested for analyzing trends and co-movement and for producing forecasts in a general way that is agnostic about the specific nature of the trend process. Some simulation exercises are conducted and some long historical series on prices and yields on long securities are used to illustrate the methods.

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Section: No One Understands Trendsmentioning

confidence: 86%

“…More generally, for every value of K we get from (15) a class of predictors corresponding to the leading K trend components in the process. Let N = [np], and N + h = [nr] so that (14) and (15) effectively provide h-step ahead optimal predictors of these components. E{η k (r)|F p } may be estimated from sample data bŷ…”

Section: Trend Coordinates and Predictionmentioning

confidence: 99%

Challenges of trending time series econometrics

Phillips

2005

Mathematics and Computers in Simulation

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“…The Zivot-Andrews test does not assume a structural break under the null and the alternative hypotheses but the Perron test allows for a break under the null and alternative hypotheses. Nunes et al (1997) suggested that there may be some size distortion for Zivot-Andrews test. The first step of the Kim-Perron procedure is a pre-test for the break date.…”

Section: Results (Note 10)mentioning

confidence: 99%

Profits: Mean Diverting with High Volatility

Silvia¹,

Iqbal²

2011

IJEF

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Even though the behavior of the U.S. profit growth varies over the economic cycle that variation itself drives investor behavior and asset prices. We raise three fundamental questions which are; first, does profit growth over time exhibit a mean-reverting behavior? Second, how volatile are profits and does this volatility obscure the message of profit growth? Finally, do profit growth rates vary between decades/ sub-samples? Our efforts suggest that since 1970 the mean and standard deviation of profit growth had actually been decreasing up until 1990s. For the most recent (2000-08) period, the profit growth shows an up-tick in both the mean and the standard deviation. For the entire period, 1970-2008, we find that the trend coefficient is statistically insignificant. We apply the traditional unit root tests, efficient unit root tests, and unit root tests with structural break on the profits series. In addition, we follow Hamilton's approach and apply an ARCH approach on the profits series. Our empirical findings are consistent with the Schumpeter's view, mean-diversion with a possibility of deviation from long-run trend growth. In addition to the factors introduced by Schumpeter there may be some exogenous shocks which could alter the long-run path of the profits.

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“…Bhattacharya et al (1983) , Künsh (1986), Perron (1989, Teverosky and Taqqu (1997), Giraitis et al (2001), Mikosch and Starica (2004) , Perron and Qu (2004) and many others). Other authors have studied the opposite effect, that is, how conventional procedures for detecting and dating structural changes tend to find spurious breaks, usually in the middle of the sample, when in fact there is only fractional integration (see Nunes et al (1995), Krämer and Sibbertsen (2002) and Hsu (2001)). …”

Section: The Test Work As Followsmentioning

confidence: 99%

The Persistence of Inflation in OECD Countries: A Fractionally Integrated Approach

Mayoral

2005

SSRN Journal

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The statistical properties of inflation and, in particular, its degree of persistence and stability over time is a subject of intense debate and no consensus has been achieved yet. The goal of this paper is to analyze this controversy using a general approach, with the aim of providing a plausible explanation for the existing contradictory results. We consider the inflation rates of 21 OECD countries which are modelled as fractionally integrated (FI) processes.First, we show analytically that FI can appear in inflation rates after aggregating individual prices from firms that face different costs of adjusting their prices. Then, we provide robust empirical evidence supporting the FI hypothesis using both classical and Bayesian techniques.Next, we estimate impulse response functions and other scalar measures of persistence, achieving an accurate picture of this property and its variation across countries. It is shown that the application of some popular tools for measuring persistence, such as the sum of the AR coefficients, could lead to erroneous conclusions if fractional integration is present. Finally, we explore the existence of changes in inflation inertia using a novel approach. We conclude that the persistence of inflation is very high (although non-permanent) in most post-industrial countries and that it has remained basically unchanged over the last four decades.JEL classification: C22, E31

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Spurious Break

Cited by 67 publications

References 24 publications

Challenges of trending time series econometrics

Challenges of trending time series econometrics

Profits: Mean Diverting with High Volatility

The Persistence of Inflation in OECD Countries: A Fractionally Integrated Approach

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