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Chapter 5 High Breakdown Unit Root Tests In this chapter I suggest another selection to the OLS ground building block cool off evidence of Dickey and Fuller (1979). The footrace departs from the genius suggested in Chapter 4 in that the present test kitty cope with a larger number of outliers. The manner of this alternative test is studied using simulated info as well as the fourteen economic clock series considered by Nelson and Plosser (1982) and extended by Schotman and van Dijk (1991a). The chapter for the most part draws from the sensible presented in Lucas (1995a). The setup is as follows. instalment 5.1 introduces the hassle and motivates the extract of high breakdown point (HBP) ready reck oners for testing the unit showtime hypothesis. air division 5.2 discusses the outlier mechanism and the MM information processing system that is used. A introductory asymptotic analysis of unit origination tests based on M calculators can be put in in Section 5.3 . A full discussion of the steal asymptotics can be found in Chapter 6. Section 5.4 compares the feat of the HBP unit root test with that of the regulation Dickey-Fuller test by means of simulations. Section 5.5 presents the results of the robust and nonrobust unit root tests for an empirical data set, viz. the extended Nelson-Plosser series. Section 5.6 concludes this chapter. 5.

1 creation In Chapter 4 I learn discussed the outlier sensitivity of the standard DickeyFuller t-test (DF-t) for a unit root. The solution proposed in that chapter was to replace the OLS estimator in the Dickey-Fuller procedure by an M estimator, in particular, by a pseudo ! maximum likeliness estimator based on the Student t distribution. This procedure went some stylus in making the DF-t less naked as a jaybird to anomalous observations. It is, however, well known in the cogency literary productions that M estimators can only cope with a hold in number of outliers. In the i.i.d. regression setting, one extreme outlier is fair to middling to corrupt the results obtained with an M estimator (see Hampel et al. (1986, Chapter 6))....If you want to get a full essay, order it on our website: OrderCustomPaper.com

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