 On the Power of GLS‐Type Unit Root TestsPeter Burridge and Robert Taylor Oxford Bulletin of Economics and Statistics, 2000, vol. 62, issue 5, 633-645 Abstract: Elliott, Rothenberg and Stock (1996), (ERS), present a ‘GLS’ variant of the Dickey‐Fuller (DF) unit root test. Their statistic is approximately point‐optimal invariant at a chosen local alternative, and usually displays better finite sample power than the DF test. Following the usual efficiency motive for GLS estimation, the higher finite sample power of the ERS test has often been attributed to the greater accuracy of the estimate of the series’ non‐stochastic component under stationary alternatives close to the null. This paper shows that the GLS estimates of the non‐stochastic component are not, in general, more accurate. The power gain arises from the fact that the GLS statistic's null distribution has a greater positive shift relative to the DF test, than its distribution under relevant alternatives, and this persists even when the GLS estimates of the non stochastics have higher variance than the OLS estimates. Date: 2000 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:obuest:v:62:y:2000:i:5:p:633-645 Ordering information: This journal article can be ordered from Access Statistics for this article Oxford Bulletin of Economics and Statistics is currently edited by Christopher Adam, Anindya Banerjee, Christopher Bowdler, David Hendry, Adriaan Kalwij, John Knight and Jonathan Temple More articles in Oxford Bulletin of Economics and Statistics from Department of Economics, University of Oxford Contact information at EDIRC. |
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