Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University CAFO Working Papers, Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University

No 2009:7:
Wavelet Improvement of the Over-rejection of Unit root test under GARCH errors

Yushu Li () and Ghazi Shukur ()

Abstract: In this paper, we use the wavelet technique to improve the over-rejection problem of the traditional Dickey-Fuller test for unit root when the data suffers from GARCH (1,1) effect. The logic is based on that the wavelet spectrum decomposition can separate out information of different frequencies in the data series. We prove that the asymptotic distribution of our test is similar to the traditional Dickey-Fuller(1979 and 1981) type of tests. The small sample distribution of the new test is assessed by means of Monte Carlo simulation. An empirical example with data on immigration to Sweden during the period 1950 to 2000 is used to illustrate the test. The results reveal that using the traditional Dickey-Fuller type of test, the unit root is rejected while our wavelet improved test shows the opposite result.

Keywords: Dickey-Fuller test; GARCH (1:1); Wavelet spectrum decomposition; MODWT; (follow links to similar papers)

JEL-Codes: C15; C52; (follow links to similar papers)

9 pages, February 26, 2009

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

Nek_wp7_09.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Andreas Mångs ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:vxcafo:2009_007 This page was generated on 2014-12-14 19:28:30