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On Unit Root Tests and the Initial Observation

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Author Info
Steve Leybourne (Nottingham)
David Harvey (Nottingham)

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Abstract

We consider the power of unit root tests for different deviations of the initial observation from the deterministic component of the series. Following recent work highlighting the relative power performance of extant tests, we propose a new procedure based on a data-dependent weighted average of the standard Dickey-Fuller and Elliott-Rothenberg- Stock tests, with the weight determined by an estimate of the initial observation’s deviation from the deterministics. Simulation of the new test’s power reveals very good performance across different magnitudes of the initial condition. The procedure’s value is further highlighted by application to US producer price inflation.

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Paper provided by EconWPA in its series Econometrics with number 0311006.

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Length: 15 pages
Date of creation: 17 Nov 2003
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Handle: RePEc:wpa:wuwpem:0311006

Note: Type of Document - ; pages: 15
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Web page: http://129.3.20.41

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Find related papers by JEL classification:
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
C5 - Mathematical and Quantitative Methods - - Econometric Modeling
C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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  1. Ulrich K. M¸ller & Graham Elliott, 2003. "Tests for Unit Roots and the Initial Condition," Econometrica, Econometric Society, vol. 71(4), pages 1269-1286, 07. [Downloadable!] (restricted)
  2. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June. [Downloadable!] (restricted)
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  4. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-83, August.
    Other versions:
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This page was last updated on 2009-12-16.

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