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A discussion on power of ADF F-test with unexpected initial value

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  • Tran Viet Ha

Abstract

This article attempts to show when the series is a stationary autoregressive process, of which, the initial value is far from the deterministic trend, power of Augmented Dickey-Fuller(ADF) F-test is not only superior to the tests, which are most powerful for small and moderate initial value, such as GLS-DF test (Elliott et al., 1996) but also to ADF t-test, given small and moderate sample sizes; and especially, when the autoregressive coefficient is close to unity. The procedure proposed by Holden and Perman (1994), which takes advantage of both t- and F-type ADF tests is recommended.

Suggested Citation

  • Tran Viet Ha, 2009. "A discussion on power of ADF F-test with unexpected initial value," Applied Economics Letters, Taylor & Francis Journals, vol. 16(17), pages 1699-1703.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:17:p:1699-1703
    DOI: 10.1080/13504850701604201
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    1. Elliott, Graham & Muller, Ulrich K., 2006. "Minimizing the impact of the initial condition on testing for unit roots," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 285-310.
    2. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    3. 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 767-783, August.
    4. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    5. Ulrich K. M¸ller & Graham Elliott, 2003. "Tests for Unit Roots and the Initial Condition," Econometrica, Econometric Society, vol. 71(4), pages 1269-1286, July.
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