A simple, robust and powerful test of the trend hypothesis

In this paper we develop a simple test procedure for a linear trend which does not require knowledge of the form of serial correlation in the data, is robust to strong serial correlation, and has a standard normal limiting null distribution under either I ( 0 ) or I ( 1 ) shocks. In contrast to other available robust linear trend tests, our proposed test achieves the Gaussian asymptotic local power envelope in both the I ( 0 ) and I ( 1 ) cases. For near- I ( 1 ) errors our proposed procedure is conservative and a modification for this situation is suggested. An estimator of the trend parameter, together with an associated confidence interval, which is asymptotically efficient, again regardless of whether the shocks are I ( 0 ) or I ( 1 ) , is also provided.