Detecting changes in persistence in linear time series

The properties of the 'change in persistence'' tests developed by Leybourne et al. (2003) are considered in the presence of structural change under the null. Interestingly, it is found that while breaks in drift result in undersizing, breaks in level lead to severe oversizing. The implications of these findings for both empirical research and the development of an alternative approach to the testing of a change in persistence are noted.

Cyclicality and Durability: Evidence from U.S. Consumers' Expediture.

In this paper three hypotheses concerning the cyclicality of U.S. consumers' expenditure are proposed. These hypotheses are based upon the distinction between expenditure on durable and non-durable goods. It is argued that durability will lead to increased cyclical sensitivity and that this increased cyclicality will be of an asymmetric nature. The asymmetric adjustment will be of the form of decreases in expenditure on durable goods being more extensive and more rapid during recessionary phases of the business cycle than corresponding increases during expansionary periods. These hypotheses are evaluated using U.S. data on consumer durables and non-durables over the period 1959-1998. Via the use of the Hodrick-Prescott (1997) filter the cyclical elements of these series are derived and subjected to Sichel's (1993) univariate tests of business cycle asymmetry. Overwhelming support is found for all of the hypotheses proposed.Asymmetry; Consumers´ Expenditure

Asymmetric unit root tests in the presence of structural breaks under the null

Using Monte Carlo methods, the behaviour of the momentum threshold autoregressive (MTAR) unit root test of Enders and Granger (1998) is examined in the presence of structural breaks under the null. It is found that for level breaks the MTAR test exhibits similar behaviour to that derived by Leybourne et al. (1998) for the Dickey-Fuller (1979) test, with size distortion apparent for early breaks only. In contrast, the results for breaks in drift show the MTAR test to experience severe size distortion when breaks occur both early and late in the sample period. The divergence in results for the MTAR and DF tests is further examined, showing that in the presence of late breaks the MTAR test can lead a practitioner to draw false inferences of both stationarity and asymmetry.

Threshold autoregressive testing procedures and structural change in cointegrating relationships

The finite-sample properties of threshold autoregressive cointegration tests are examined in the presence of structural changes in cointegrating relationships. It is shown that spurious asymmetric cointegration may be exhibited when there is a change in the degree of cointegration between two series.

On the finite-sample power of modified Dickey-Fuller tests: The role of the initial condition

The relationship between the initial condition of time series data and the power of the Dickey-Fuller (1979) test and a number of modified Dickey-Fuller tests is examined. The results obtained extend the asymptotic analysis of Muller and Elliott (2003) by both focussing upon finite-sample power and examining previously unconsidered modified tests. It is shown that deviation of the initial condition from the underlying deterministic component of a time series increases the finite-sample power of the original Dickey-Fuller test, but removes the potential gains in power resulting from the use of modified tests. Interestingly, some variation in the properties of modified tests is noted. In addition to allowing evaluation of previous Monte Carlo studies of the finite-sample power of unit root tests, the results presented allow practitioners to select, and interpret the results of, alternative unit root tests in light of the initial condition of the data examined.Forward and reverse regressions

Unusual behaviour of Dickey-Fuller tests in the presence of trend mis-specification

This paper analyses the properties of Dickey-Fuller (1979) (DF) unit root tests in the presence of trend mis-specification. It is shown that while the performance of the DF coefficient test is as expected, the DF test in its t-ratio form exhibits unusual behaviour. In particular it is found that the power of the test increases as the autoregressive parameter approaches 1. Interestingly, this increased power is not accompanied by oversizing.DF test

The reaction of interest rates to the employment report: the role of policy anticipations

Interest rates have reacted strongly to the monthly employment report in recent years. The authors document the reaction of rates to the report and provide evidence that it has been stronger since the mid-1980s than in earlier years. Evidently the report now has greater impact than formerly on expectations of where the Fed is going to move the federal funds rate. These expectations influence longer-term money market rates.Interest rates ; Employment (Economic theory) ; Monetary policy

Unit root testing in the presence of innovation variance breaks: a simple solution with increased power

The Dickey-Fuller unit root test is known to suffer severe oversizing in the presence of innovation variance breaks. In this paper, forward and reverse Dickey-Fuller regressions are proposed as a means of correcting this size distortion. The results of Monte Carlo experimentation show such an approach to result in both satisfactory size properties and increased power relative to previously suggested solutions

Temperature conditions in the cold pool 1977-81: A comparison between Southern New England and New York transects

Expendable bathythermograph data collected by the Ships of Opportunity (SOOP) - Ocean Monitoring Program are analyzed for seasonal and inter-annual variations of the cold pool. Two major SOOP transects within the Middle Atlantic Bight (Southern New England and New York) have been analyzed for the years common to both (1977-81). During the years 1977-81, over 200 transects were occupied, and almost 3,000 XBT's were dropped. Results show that the cold pool is formed with the onset of spring warming and persists until fall overturn, is consistent year to year in both area and weighted average annual temperature, and advects water from the northeast to the southwest. Results also show a 100-d lag in minimum temperature between the Southern New England and New York transects. DitTerences in bathymetry between the two transects and their influence on the cold pool are also discussed. Plots of average (1977-81) bottom temperature for both transects are discussed and show consistent annual weighted mean temperature and areas. Bottom temperature plots for individual years, as well as maximum and minimum bottom temperature plots, are presented as Appendix figures. (PDF file contains 28 pages.