Improving empirical size of the KPSS test of stationarity

Improving empirical size of the KPSS test of stationarity

This note proposes a new testing procedure that can alleviate the size prob-Lem associated with semiparametric tests of stationarity. The note is focused on The test by Kwiatkowski, Phillips, Schmidt and Shin (1992) considering its pop-ularity in the literature. The testing procedure of this note employs sample-split and the Bonferronitest. The sample is split into two parts, one corresponding to the odd index and the other to the even index, and the KPSS test is applied to each subsample. The two KPSS tests are then combined using the Bonfer-roni principle. Simulation results demonstrate that this procedure significantly reduces the size distortion of the KPSS test.