The Effectiveness of Information Criteria in Determining Unit Root and Trend Status
AbstractThis paper compares the performance of using an information criterion, such as the Akaike information criterion or the Schwarz (Bayesian) information criterion, rather than hypothesis testing in consideration of the presence of a unit root for a variable and, if unknown, the presence of a trend in that variable. The investigation is performed through Monte Carlo simulations. Properties considered are frequency of choosing the unit root status correctly, predictive performance, and frequency of choosing an appropriate subsequent action on the examined variable (first differencing, detrending, or doing nothing). Relative performance is considered in a minimax regret framework. The results indicate that use of an information criterion for determining unit root status and (if necessary) trend status of a variable can be competitive to alternative hypothesis testing strategies.
Download InfoIf 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.
Bibliographic InfoPaper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 213.
Length: 33 pages
Date of creation: 11 Feb 2010
Date of revision:
Contact details of provider:
Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
More information through EDIRC
Unit Root; Stationarity; Model Selection; Minimax regret; Information Criteria;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
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.:
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991.
"Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?,"
Cowles Foundation Discussion Papers
979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Tom Doan, . "KPSS: RATS procedure to perform KPSS (Kwiatowski, Phillips, Schmidt, and Shin) stationarity test," Statistical Software Components RTS00100, Boston College Department of Economics.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- John Elder & Peter E. Kennedy, 2001. "Testing for Unit Roots: What Should Students Be Taught?," The Journal of Economic Education, Taylor & Francis Journals, vol. 32(2), pages 137-146, January.
- Ayat, Leila & Burridge, Peter, 2000.
"Unit root tests in the presence of uncertainty about the non-stochastic trend,"
Journal of Econometrics,
Elsevier, vol. 95(1), pages 71-96, March.
- Ayat, L. & Burridge, P., 1996. "Unit Root Tests in the presence of Uncertainty about the Non-Stochastic Trends," Discussion Papers 96-28, Department of Economics, University of Birmingham.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- Hacker, Scott & Hatemi-J, Abdulnasser, 2010. "The Properties of Procedures Dealing with Uncertainty about Intercept and Deterministic Trend in Unit Root Testing," Working Paper Series in Economics and Institutions of Innovation 214, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
- Peter C.B. Phillips, 1985.
"Understanding Spurious Regressions in Econometrics,"
Cowles Foundation Discussion Papers
757, Cowles Foundation for Research in Economics, Yale University.
- Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
- McQuarrie, Allan & Shumway, Robert & Tsai, Chih-Ling, 1997. "The model selection criterion AICu," Statistics & Probability Letters, Elsevier, vol. 34(3), pages 285-292, June.
- Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
- Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vardan Hovsepyan).
If references are entirely missing, you can add them using this form.