Testing for seasonal unit roots in periodic integrated autoregressive processes

Tomas Del Barrio Castro, Denise R. Osborn

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the implications of applying the Hylleberg, Engle, Granger, and Yoo (1990, Journal of Econometrics 44, 215-238) (HEGY) seasonal root tests to a process that is periodically integrated. As an important special case, the random walk process is also considered, where the zero-frequency unit root t-statistic is shown to converge to the Dickey-Fuller distribution and all seasonal unit root statistics diverge. For periodically integrated processes and a sufficiently high order of augmentation, the HEGY t-statistics for unit roots at the zero and semiannual frequencies both converge to the same Dickey-Fuller distribution. Further, the HEGY joint test statistic for a unit root at the annual frequency and all joint test statistics across frequencies converge to the square of this distribution. Results are also derived for a fixed order of augmentation. Finite-sample Monte Carlo results indicate that, in practice, the zero-frequency HEGY statistic (with augmentation) captures the single unit root of the periodic integrated process, but there may be a high probability of incorrectly concluding that the process is seasonally integrated. © 2008 Cambridge University Press.
Original languageEnglish
Pages (from-to)1093-1129
Number of pages36
JournalEconometric Theory
Volume24
Issue number4
DOIs
Publication statusPublished - Aug 2008

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