TY - JOUR
T1 - The effect of data transformation on common cycle, cointegration, and unit root tests
T2 - Monte Carlo results and a simple test
AU - Corradi, Valentina
AU - Swanson, Norman R.
PY - 2006/5
Y1 - 2006/5
N2 - Cointegration, common cycle, and related tests statistics are often constructed using logged data, even without clear reason why logs should be used rather than levels. Unfortunately, it is also the case that standard data transformation tests, such as those based on Box-Cox transformations, cannot be shown to be consistent unless assumptions concerning whether variables I ( 0 ) or I ( 1 ) are made. In this paper, we propose a simple randomized procedure for choosing between levels and log-levels specifications in the (possible) presence of deterministic and/or stochastic trends, and discuss the impact of incorrect data transformation on common cycle, cointegration and unit root tests.
AB - Cointegration, common cycle, and related tests statistics are often constructed using logged data, even without clear reason why logs should be used rather than levels. Unfortunately, it is also the case that standard data transformation tests, such as those based on Box-Cox transformations, cannot be shown to be consistent unless assumptions concerning whether variables I ( 0 ) or I ( 1 ) are made. In this paper, we propose a simple randomized procedure for choosing between levels and log-levels specifications in the (possible) presence of deterministic and/or stochastic trends, and discuss the impact of incorrect data transformation on common cycle, cointegration and unit root tests.
KW - Common cycles
KW - Common trends
KW - Nonlinear transformation
KW - Nonstationarity
KW - Randomized procedure
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U2 - 10.1016/j.jeconom.2005.01.028
DO - 10.1016/j.jeconom.2005.01.028
M3 - Article
AN - SCOPUS:33646135797
SN - 0304-4076
VL - 132
SP - 195
EP - 229
JO - Journal of Econometrics
JF - Journal of Econometrics
IS - 1
ER -