On the Behaviour of Phillips–Perron Tests in the Presence of Persistent Cycles

• DOI: 10.1111/obes.12091
• Publication Date: 2015-01-21T14:08:57Z
• Authors: Tomás Del Barrio ...; Paulo M. M. Rodri...; A. M. Robert Taylor
• Keywords: Popularity; Component (thermodynamics)

Abstract In this paper, we analyse the impact of persistent cycles on well‐known semi‐parametric unit root tests Phillips and Perron (1988, Biometrika , Vol. 75, pp. 335–346). It is shown, both analytically through Monte Carlo simulations, that presence complex (near) roots can severely bias size properties these tests. Given popularity with applied researchers their routine in most econometric software packages, results presented paper suggest practitioners should treat outcomes some caution when to data which display a strong cyclical component.