Optimal Fractional Dickey-Fuller Tests for Unit Roots
AbstractThis article studies the fractional Dickey- Fuller (FDF) test for unit roots recently introduced by Dolado, Gonzalo and Mayoral (2002). Apart from the analogy with the Dickey-Fuller test, the main motivation for their method relies on simulations since these authors do not provide any justification for their particular implementation of the FDF test. In order to give additional rationale to the test, we frame the FDF test in a model where a nuisance or auxiliary parameter is not identified under the null hypothesis. Within this framework we investigate optimality aspects of the class of tests indexed by this auxiliary parameter and show that the test proposed by these authors is not optimal. In addition, we propose feasible FDF tests with good asymptotic and finite sample properties.
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Bibliographic InfoPaper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0401.
Length: 29 pages
Date of creation: Feb 2004
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