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A Comparison of OLS and WS unit Root Test Results

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  • Falk, Barry

Abstract

OLS-based unit root tests (e.g., Dickey-Fuller, Augmented DickeyFuller, and PhiHips-Perron tests) typically fail to reject the unit root null at conventional significance levels when applied to macroeconomic time series data. This has stimulated a large amount of research regarding the applied and theoretical econometric implications of unit root processes. However, these tests are known to have low power against trend stationary and near-unit-root alternatives, the leading alternative data generating processes for these data. Recently, Pantula, GonzalezFarias, and Fuller (1994) proposed a unit root test based upon the weighted-symmetric estimator of an autoregressive model developed by Park and Fuller (1993). Their simulation studies suggest that this is a more, powerful test than the OLS-based tests. In this paper we consider the practical implications of the new test by applying the Pantula, GonzalezFarias, and Fuller (PGF) test and the augmented Dickey-Fuller (ADF) test to the extended Nelson-Plosser data set.

Suggested Citation

  • Falk, Barry, 1995. "A Comparison of OLS and WS unit Root Test Results," ISU General Staff Papers 199506010700001268, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:199506010700001268
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    References listed on IDEAS

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    1. Schotman, Peter C & van Dijk, Herman K, 1991. "On Bayesian Routes to Unit Roots," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 387-401, Oct.-Dec..
    2. Lucas, Andre, 1995. "An outlier robust unit root test with an application to the extended Nelson-Plosser data," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 153-173.
    3. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-459, October.
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