Using Double Frequency in Fourier Dickey–Fuller Unit Root Test

Yifei Cai; Tolga Omay

doi:10.1007/s10614-020-10075-5

Using Double Frequency in Fourier Dickey–Fuller Unit Root Test

Yifei Cai, Tolga Omay

TUIBS Finance, Performance & Marketing

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

We propose a double frequency fourier Dickey–Fuller (DF) unit root test. The asymptotic theory of the newly proposed test is first presented in this study. We conduct a series of simulations which suggest the proposed test statistic has correct size performance and gains more power when breaks are located at the beginning and end of the sample and in smooth type. In empirical analysis, we utilize the new test to examine the unit root hypothesis of relative commodity prices measured by Harvey et al. (Rev Econ Stat 92(2):367–377, 2010). The empirical results show that more relative commodity prices are stationary around a deterministic trend generated from double frequency Fourier function.

Original language	English
Pages (from-to)	445-470
Number of pages	26
Journal	Computational Economics
Volume	59
Issue number	2
DOIs	https://doi.org/10.1007/s10614-020-10075-5
Publication status	Published - 1 Feb 2022

Bibliographical note

Funding Information:
We thank the editor, three anonymous referees, and participants of a Work-in-Progress seminar at UWA Business School for valuable comments and suggestions. Data used in this study were kindly provided by Neil Kellard. Work on this paper is supported by Australian Government International Research Training Program Scholarship and University Postgraduate Award.

Publisher Copyright:
© 2021, Springer Science+Business Media, LLC, part of Springer Nature.

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Cite this

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abstract = "We propose a double frequency fourier Dickey–Fuller (DF) unit root test. The asymptotic theory of the newly proposed test is first presented in this study. We conduct a series of simulations which suggest the proposed test statistic has correct size performance and gains more power when breaks are located at the beginning and end of the sample and in smooth type. In empirical analysis, we utilize the new test to examine the unit root hypothesis of relative commodity prices measured by Harvey et al. (Rev Econ Stat 92(2):367–377, 2010). The empirical results show that more relative commodity prices are stationary around a deterministic trend generated from double frequency Fourier function.",

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Using Double Frequency in Fourier Dickey–Fuller Unit Root Test

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