On the Small Sample Properties of Dickey Fuller and Maximum Likelihood Unit Root Tests on Discrete-Sampled Short-Term Interest Rates

Testing for unit roots in short-term interest rates plays a key role in the empirical modelling of these series. It is widely assumed that the volatility of interest rates follows some time-varying function which is dependent of the level of the series. This may cause distortions in the performance of conventional tests for unit root nonstationarity since these are typically derived under the assumption of homoskedasticity. Given the relative unfamiliarity on the issue, we conducted an extensive Monte Carlo investigation in order to assess the performance of the DF unit root tests, and examined the effects on the limiting distributions of test procedures (t- and likelihood ratio tests) based on maximum likelihood estimation of models for short-term rates with a linear drift.Unit root, interest rates, CKLS model.

Seasonal Unit Root Tests under Structural Breaks

In this paper, several seasonal unit root tests are analysed in the context of structural breaks at known time and a new break corrected test is suggested. We show that the widely used HEGY test as well as an LM variant thereof are asymptotically robust to seasonal mean shifts of finite magnitude. In finite samples, however, experiments reveal that such tests suffer from severe size distortions and power reductions when breaks are present. Hence, a new break corrected LM test is proposed in order to overcome this problem. Importantly, the correction for seasonal mean shifts bears no consequence on the limiting distributions thereby maintaining the legitimacy of canonical critical values. Moreover, although this test assumes a breakpoint a priori, it is robust in terms of misspecification of the time of the break. This asymptotic property is well reproduced in finite samples. Based on a Monte Carlo study, our new test is compared with other procedures suggested in the literature and shown to hold superior finite sample properties.Structural Breaks, Unit Roots, Seasonal Unit Root Tests

Tourism Demand in Portugal: Market Perspectives

Tourism has experienced different levels of development in the different regions of Portugal. To frame this development, several panel data models were estimated. The main objective is to explain the evolution of overnight stays by nationality in each region. Secondary data from 2000 to 2010 was used. The analysis includes the main tourism markets, such as the United Kingdom, Germany, the Netherlands, Ireland, France and Spain. Tourism literature suggests that, among others, the main determinants of tourism demand are Income (GDP), population, tourist´s income by place of residence, households’ consumption, unemployment rate, inflation rate, compensation of employees, comparative prices and households’ investment rate. It is observed that, although significant, the explanatory power of these variables varies according to the origin and the destination region considered

Seasonal Nonstationarity and Near-Nonstationarity

This paper presents a detailed discussion of the characteristics of seasonal integrated and near integrated processes, as well as the asymptotic properties of seasonal unit root tests. More specifically, the characteristics of a seasonal random walk and a more general seasonal integrated ARMA process are analysed. Also the implications of modelling nonstationary stochastic season-ality as deterministic are highlighted. A further observation made includes the asymptotic distributions and power functions of several seasonal unit root tests. Dans cet article, nous étudions les propriétés des processsus avec racines unitaires saisonnières et avec racines quasi-unitaires. Nous traitons le cas des marchés aléatoires ainsi que les processus plus généraux et analysons les distributions des estimateurs et les fonctions de puissances de plusieurs tests.Deterministic/stochastic seasonality, seasonal unit roots, Saisonnalité déterministique et stochastique, racines unitaires saisonnières

Seasonal Unit Root Tests under Structural Breaks

In this paper, several seasonal unit root tests are analysed in the context of structural breaks at known time and a new break corrected test is suggested. We show that the widely used HEGY test as well as an LM variant thereof are asymptotically robust to seasonal mean shifts of finite magnitude. In finite samples, however, experiments reveal that such tests suffer from severe size distortions and power reductions when breaks are present. Hence, a new break corrected LM test is proposed in order to overcome this problem. Importantly, the correction for seasonal mean shifts bears no consequence on the limiting distributions thereby maintaining the legitimacy of canonical critical values. Moreover, although this test assumes a breakpoint a priori, it is robust in terms of misspecification of the time of the break. This asymptotic property is well reproduced in finite samples. Based on a Monte Carlo study, our new test is compared with other procedures suggested in the literature and shown to hold superior finite sample properties

Os efeitos da Internet na actividade turística

A Internet tem motivado o desenvolvimento do turismo, facilitou o acesso instantâneo e a distribuição de informação turística bem como o suporte e a reengenharia das reservas das organizações turísticas, permitindo a todos os utilizadores, sem necessidade de intermediários, aceder a informações turísticas e efectuar reservas de produtos turísticos. Como resultado, um mercado electrónico emergiu e a maioria dos fornecedores turísticos desenvolveu interfaces para comunicar directamente e eficientemente com os seus parceiros e com os clientes. Surgiu um novo tipo de viajante mais conhecedor, experiente e que procura valores excepcionais para as suas viagens. A interactividade desenvolvida entre os consumidores, produtos e profissionais do sector tem provocado alterações na cadeia de valor do turismo, nos canais de distribuição bem como tem motivado o surgimento de novas tendências associadas a este meio interactivo

Persistence change in tourism data

The authors apply recently proposed persistence change tests to inbound tourism series in order to evaluate whether their properties have changed over time. By using quarterly series of the number of overnight stays in hotel accommodation and similar establishments in the Algarve, from 1987:01 to 2008:03, they gathered evidence of persistence change in all series. In particular, a change from I(1) to I(0) was detected for some countries, while for others the direction change was not clear-cut. These results have implications from a policy perspective and shed light on the generally accepted conviction that policy decision processes should not ignore the fact that, in general, tourism inbound series display mean reverting behaviour, being only temporarily affected by external shocks

Inflation persistence in OECD and non-OECD economies

Inflation is an important macroeconomic variable that affects the options of economic agents as well as their future expectations and it is often regarded as a result of domestic policies combined with the effects of globalization and therefore, a sign of how governments have been well succeeded in their political options. This issue is reflected in the mandate of many monetary authorities to maintain price stability and, therefore, no wonder it plays a critical role in policies’ design as its effects spread out in the economy as a whole either in terms of economic efficiency and equity, two of the most important concerns of any government’s policy. This explains the attention political authorities and economic agents in general have given to the evolution of inflation and the fact that its control has been stated as a priority for governments all over the world. These issues have became increasing relevant as the international monetary context has experienced important changes such as the adoption of inflation targeting regimes by some countries, the arrival of monetary union in Europe, and a general deflationist process in industrial economies

Unit root tests for panel data: a survey and an application

The importance of a priori check of the existence of unit roots in the panel data comes from the already known effect that the presence of unit roots in time series may cause a misinterpretation of estimated results. Adding the cross-section dimension to the time series dimension offers an advantage in testing for nonstationary and cointegration since cross-section increases the data set used in those tests, thus improving their power. However, the cross-section dimension also brings some new problems into question, namely the existence of cross-section dependency which can bias usual panel data unit root test results in small samples. This paper presents a survey of panel unit root tests, evidencing the most recent developments on the issue, including those that account for the presence of contemporaneous cross-correlation as well as for the presence of heterogeneous serial correlation. Parallel to the developments of panel unit root tests, great attention has also been given to cointegration tests. We briefly review the most widely referred cointegration tests. We apply the reviewed panel unit root tests on an EU social variable which represents the population weight over than 65 years of age. We consider data running from 1970 to 2001. The panel unit root test results reveal to be sensitive to the prior assumptions regarding contemporaneous cross-correlation and heterogeneous serial correlation in small samples. The usual battery of panel unit root tests appear not to be adequate when a panel is composed by a mix of a stationary and nonstationary time series