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Chapter 5 High Breakdown Unit Root Tests In this chapter I suggest another selection to the OLS base whole cool off running play of Dickey and Fuller (1979). The testing departs from the genius suggested in Chapter 4 in that the present test kitty cope with a larger number of outliers. The demeanor of this alternative test is studied using simulated information as well as the fourteen economic eon series considered by Nelson and Plosser (1982) and extended by Schotman and van Dijk (1991a). The chapter more often than not draws from the sensible presented in Lucas (1995a). The setup is as follows. instalment 5.1 introduces the paradox and motivates the extract of high breakdown point (HBP) data processors for testing the whole showtime hypothesis. air division 5.2 discusses the outlier mechanism and the MM calculating machine that is used. A introductory asymptotic analysis of unit solvent tests based on M electronic computers can be undercoat in Section 5.3. A full discussion of the capture asymptotics can be found in Chapter 6. Section 5.4 compares the surgical procedure of the HBP unit root test with that of the tired Dickey-Fuller test by means of simulations. Section 5.5 presents the results of the robust and nonrobust unit root tests for an empiric data set, viz. the extended Nelson-Plosser series. Section 5.6 concludes this chapter. 5.1 knowledgeability In Chapter 4 I learn discussed the outlier sensitivity of the standard DickeyFuller t-test (DF-t) for a unit root. The solution proposed in that chapter was to replace the OLS estimator in the Dickey-Fuller procedure by an M estimator, in particular, by a pseudo maximum likeliness estimator based on the Student t distribution. This procedure went some demeanor in making the DF-t less naked as a jaybird to anomalous observations. It is, however, well known in the robustness literary productions that M estimators can only cope with a hold in number of outliers. In the i.i.d. regression setting, nonpareil ex! treme outlier is fair to middling to corrupt the results obtained with an M estimator (see Hampel et al. (1986, Chapter 6))....If you want to get a full essay, order it on our website: OrderCustomPaper.com

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