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NEARLY OPTIMAL TEST FOR LONG-RUN PREDICTABILITY WITH NEARLY INTEGRATED REGRESSORS

Published online by Cambridge University Press:  27 April 2020

Natalia Sizova
Natalia Sizova*
Affiliation:
Microsoft
*
Address correspondence to Natalia Sizova, Microsoft, Bellevue, WA 98005, USA; e-mail: Natalia.Sizova@microsoft.com.
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Abstract

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We develop a method for long-run predictability testing in series Y by a persistent series X. We consider a class of tests based on the long-run behavior of these series that are robust to short-run dynamics and attempt to attain the highest possible power. The test is based on the Whittle approximation to the likelihood ratio that is adjusted to remain accurate across a range of persistence in X. We verify the properties of this test in small simulations and compare this test against a group of recently proposed methods.

Information

Type
ARTICLES
Information
Econometric Theory , Volume 37 , Issue 1 , February 2021, pp. 82 - 137
Copyright
© Cambridge University Press 2020

Footnotes

*

I am thankful to Michael Jansson for providing the code for the optimal inference method, as well as to Michalis P. Stamatogiannis and Tassos Magdalinos for providing the code for the IVX estimator.

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