A0519
Title: A fixed-b perspective on the Phillips-Ouliaris non-cointegration Z-tests
Authors: Sebastian Veldhuis - University of Klagenfurt (Austria) [presenting]
Martin Wagner - University of Klagenfurt, Bank of Slovenia and Institute for Advanced Studies, Vienna (Austria)
Abstract: Fixed-b asymptotic theory is extended to the nonparametric Phillips-Ouliaris (PO) non-cointegration Z-tests. We show that the fixed-b limits depend on nuisance parameters in a complicated way. These non-pivotal limits provide an alternative theoretical explanation for the well-known finite-sample problems of the PO Z-tests. Based on these results, we introduce modified PO Z-tests that allow for pivotal fixed-b inference. We consider the asymptotic behavior under the spurious regression null, under local (near-integrated) and fixed alternatives. The performance of the original and modified PO Z-tests is compared by means of local asymptotic power and a finite-sample simulation study.
