Advanced Search
MyIDEAS: Login

The Asymptotic Size and Power of the Augmented Dickey-Fuller Test for a Unit Root

Contents:

Author Info

  • Paparoditis, Efstathios
  • Politis, Dimitris N
Registered author(s):

    Abstract

    It is shown that the limiting distribution of the augmented Dickey-Fuller (ADF) test under the null hypothesis of a unit root is valid under a very general set of assumptions that goes far beyond the linear AR (∞) process assumption typically imposed. In essence, all that is required is that the error process driving the random walk possesses a spectral density that is strictly positive. Given that many economic time series are nonlinear, this extended result may have important applications. Furthermore, under the same weak assumptions, the limiting distribution of the ADF test is derived under the alternative of stationarity, and a theoretical explanation is given for the well-known empirical fact that the test's power is a decreasing function of the autoregressive order p used in the augmented regression equation. The intuitive reason for the reduced power of the ADF test as p tends to infinity is that the p regressors become asymptotically collinear. Â

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.escholarship.org/uc/item/0784p55m.pdf;origin=repeccitec
    Download Restriction: no

    Bibliographic Info

    Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt0784p55m.

    as in new window
    Length:
    Date of creation: 01 Dec 2013
    Date of revision:
    Handle: RePEc:cdl:ucsdec:qt0784p55m

    Contact details of provider:
    Postal: 9500 Gilman Drive, La Jolla, CA 92093-0508
    Phone: (858) 534-3383
    Fax: (858) 534-7040
    Web page: http://www.escholarship.org/repec/ucsdecon/
    More information through EDIRC

    Related research

    Keywords: Social and Behavioral Sciences; Autoregressive Representation; Hypothesis Testing; Integrated Series; Unit Root;

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Perron, Pierre, 1991. "A Continuous Time Approximation to the Unstable First-Order Autoregressive Process: The Case without an Intercept," Econometrica, Econometric Society, vol. 59(1), pages 211-36, January.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    3. Lopez, J. Humberto, 1997. "The power of the ADF test," Economics Letters, Elsevier, vol. 57(1), pages 5-10, November.
    4. Biao Wu, Wei & Min, Wanli, 2005. "On linear processes with dependent innovations," Stochastic Processes and their Applications, Elsevier, vol. 115(6), pages 939-958, June.
    5. Yoosoon Chang & Joon Park, 2002. "On The Asymptotics Of Adf Tests For Unit Roots," Econometric Reviews, Taylor & Francis Journals, vol. 21(4), pages 431-447.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    7. Nabeya, Seiji & Tanaka, Katsuto, 1990. "A General Approach to the Limiting Distribution for Estimators in Time Series Regression with Nonstable Autoregressive Errors," Econometrica, Econometric Society, vol. 58(1), pages 145-63, January.
    8. Abadir, Karim M., 1993. "On the Asymptotic Power of Unit Root Tests," Econometric Theory, Cambridge University Press, vol. 9(02), pages 189-221, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cdl:ucsdec:qt0784p55m. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.