Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 377: Seasonal Unit Root Tests for Trending and Breaking Series with Application to Industrial Production
Joakim Westerlund (), Mauro Costantini, Paresh Narayan and Stephan Popp
Additional contact information
Joakim Westerlund: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Mauro Costantini: University of Vienna, Postal: Austria
Paresh Narayan: Deakin University, Postal: Australia
Stephan Popp: University of Duisburg–Essen, Postal: Germany
Abstract: Some unit root testing situations are more difficult than others. In the case of quarterly industrial production there is not only the seasonal variation that needs to be considered but also the occasionally breaking linear trend. In the current paper we take this as our starting point to develop three new seasonal unit root tests that allow for a break in both the seasonal mean and linear trend of a quarterly time series. The asymptotic properties of the tests are derived and investigated in small-samples using simulations. In the empirical part of the paper we consider as an example the industrial production of 13 European countries. The results suggest that for most of the series there is evidence of stationary seasonality around an otherwise nonseasonal unit root.
Keywords: Seasonal unit root tests; Structural breaks; Linear time trend; Industrial production
31 pages, September 11, 2009
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