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Unit Root Tests and the Burden of Proof

Author

Listed:
  • Robert A. Amano

    (Bank of Canada)

  • Simon van Norden

    (Bank of Canada)

Abstract

Simulation evidence is presented on the finite sample properties of two tests for stationarity recently proposed by Kwiatkowski, Phillips and Schmidt (1991) and Park (1990). Unlike earlier unit-root tests, these test the null of stationarity against the alternative of a unit root, thereby reversing the usual burden of proof. We also examine the consequenes of using the Kwiatkowski, Phillips and Schmidt test in conjuction with a standard unit-root test. These results suggest that the frequency of incorrect conclusions may be decreased relative to the application of only standard unit-root tests. Also, such a joint testing procedure may in some cases permit researchers to be more confident about their tests' results.

Suggested Citation

  • Robert A. Amano & Simon van Norden, 1995. "Unit Root Tests and the Burden of Proof," Econometrics 9502005, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpem:9502005
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    References listed on IDEAS

    as
    1. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
    2. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December.
    3. Phillips, P C B, 1991. "Bayesian Routes and Unit Roots: De Rebus Prioribus Semper Est Disputandum," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 435-473, Oct.-Dec..
    4. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    5. 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 333-364, Oct.-Dec..
    6. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
    7. 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.
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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: 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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