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Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?

  • Kwiatkowski, D.
  • Phillips, P.C.B.
  • Schmidt, P.

The standard conclusion that is drawn from this empirical evidence is that many or most aggregate economic time series contain a unit root. However, it is important to note that in this empirical work the unit root is set up as the null hypothesis testing is carried out ensures that the null hypothesis is accepted unless there is strong evidence against it. Therefore, an alternative explanation for the common failure to reject a unit root is simply that most economic time series are not very informative about whether or not there is a unit root; or, equivalently, that standard unit root tests are not very powerful against relevant alternatives.

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Paper provided by Michigan State - Econometrics and Economic Theory in its series Papers with number 8905.

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Length: 23 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:mistet:8905
Contact details of provider: Postal: MICHIGAN STATE UNIVERSITY, DEPARTMENT OF ECONOMICS, EAST LANSING MICHIGAN 48824 U.S.A.
Phone: 517.355.7583
Fax: 517.432.1068
Web page: http://econ.msu.edu/

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  1. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
  2. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  3. Busetti, Fabio & Harvey, Andrew, 2008. "Testing For Trend," Econometric Theory, Cambridge University Press, vol. 24(01), pages 72-87, February.
  4. Peter C.B. Phillips & Peter Schmidt, 1989. "Testing for a Unit Root in the Presence of Deterministic Trends," Cowles Foundation Discussion Papers 933, Cowles Foundation for Research in Economics, Yale University.
  5. Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332.
  6. Glenn D. Rudebusch, 1990. "Trends and random walks in macroeconomic time series: a re-examination," Finance and Economics Discussion Series 139, Board of Governors of the Federal Reserve System (U.S.).
  7. Phillips, P C B, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 333-64, Oct.-Dec..
  8. Tanaka, Katsuto, 1990. "Testing for a Moving Average Unit Root," Econometric Theory, Cambridge University Press, vol. 6(04), pages 433-444, December.
  9. Peter C.B. Phillips & Joon Y. Park, 1986. "Statistical Inference in Regressions with Integrated Processes: Part 2," Cowles Foundation Discussion Papers 819R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1987.
  10. Peter C.B. Phillips, 1988. "Spectral Regression for Cointegrated Time Series," Cowles Foundation Discussion Papers 872, Cowles Foundation for Research in Economics, Yale University.
  11. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  12. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  13. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
  14. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  15. Tanaka, Katsuto, 1983. "Non-Normality of the Lagrange Multiplier Statistic for Testing the Constancy of Regression Coefficients," Econometrica, Econometric Society, vol. 51(5), pages 1577-82, September.
  16. Peter C.B. Phillips & Victor Solo, 1989. "Asymptotics for Linear Processes," Cowles Foundation Discussion Papers 932, Cowles Foundation for Research in Economics, Yale University.
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