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The stylized approach to unit root testing: Neglected contributions and the cost of simplicity

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  • Steven Cook
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    Abstract

    Following Dickey & Fuller (1979) (DF), a stylized approach to the testing of the unit root hypothesis has emerged. Based upon the combined use of the DF test in its augmented t -ratio form and MacKinnon (1991) critical values, the approach has received widespread adoption due to the ease with which it can be applied. In this paper a number of departures from this "stylized approach', which do not significantly reduce its ease of application, are examined. The results obtained from an empirical application to UK industrial production and Monte Carlo experimentation have clear methodological implications, showing that routine application of the stylized approach can lead to misleading inferences concerning the integrated nature of economic time series.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0266476022000030048
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Applied Statistics.

    Volume (Year): 30 (2003)
    Issue (Month): 3 ()
    Pages: 267-272

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    Handle: RePEc:taf:japsta:v:30:y:2003:i:3:p:267-272

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    1. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-80, July.
    2. Leybourne, S J, 1995. "Testing for Unit Roots Using Forward and Reverse Dickey-Fuller Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 559-71, November.
    3. S Cook, 2001. "Finite-sample critical values of the Augmented Dickey-Fuller statistic: a note on lag order," Economic Issues Journal Articles, Economic Issues, vol. 6(2), pages 31-46, September.
    4. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    5. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Universite de Montreal, Departement de sciences economiques.
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