On the Robustness of Unit Root Tests in the Presence of Double Unit Roots

Niels Haldrup () and Peter Lildholdt

Journal of Time Series Analysis, 2002, vol. 23, issue 2, 155-171

Abstract: We examine some of the consequences on commonly used unit root tests when the underlying series is integrated of order two rather than of order one. It turns out that standard augmented Dickey–Fuller type of tests for a single unit root have excessive density in the explosive region of the distribution. The lower (stationary) tail, however, will be virtually unaffected in the presence of double unit roots. On the other hand, the Phillips–Perron class of semi‐parametric tests is shown to diverge to plus infinity asymptotically and thus favouring the explosive alternative. Numerical simulations are used to demonstrate the analytical results and some of the implications in finite samples.

Date: 2002
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https://doi.org/10.1111/1467-9892.00260

Related works:
Working Paper: On the Robustness of Unit Root Tests in the Presence of Double Unit Roots (2000)
Working Paper: On the Robustness of Unit Root Tests in the Presence of Double Unit Roots
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