On Unit Root Tests and the Initial Observation

Stephen Leybourne () and David Harvey
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David Harvey: Nottingham

Econometrics from EconWPA

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.

JEL-codes: C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2003-11-17
Note: Type of Document - ; pages: 15
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:0311006

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