| Testing for Unit Roots in the Context of Misspecified Logarithmic Random Walks (2007) | |||||||||||||
Abstract | |||||||||||||
| Testing for unit roots has been among the most heavily researched topics in Econometrics for the last quarter of a century. Much less researched is the equally important issue of the appropriate transformation (if any) of the variable of interest which should preceed any such testing. In macroeconometrics and empirical finance (stock prices, exchange rates), there are often compelling arguments in favor of a logarithmic transformation. Elsewhere, for instance in the modelling of interest rates, a levels specification automatically suggests itself. In many applications, however, it is not a priori clear, given that one suspects a unit root, whether this unit root is present in the levels or the logs, so there is certainly some interest in the testing for unit roots in the context of an incompletely specified nonlinear transformation of the data. This issue can be approached from various angles. One is to check which transformations leave the... | |||||||||||||
Publication details | |||||||||||||
| |||||||||||||