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On the power of durbin-watson statistic against fractionally integrated processes

Wen-Jen Tsay ()

Econometric Reviews, 1998, vol. 17, issue 4, 361-386

Abstract: This paper provides the theoretical explanation and Monte Carlo experiments of using a modified version of Durbin-Watson ( D W ) statistic to test an 1 ( 1 ) process against I ( d ) alternatives, that is, integrated process of order d, where d is a fractional number. We provide the exact order of magnitude of the modified D W test when the data generating process is an I ( d ) process with d E (0. 1.5). Moreover, the consistency of the modified DW statistic as a unit root test against I ( d ) alternatives with d E ( 0 , l ) U ( 1 , 1.5) is proved in this paper. In addition to the theoretical analysis, Monte Carlo experiments show that the performance of the modified D W statistic reveals that it can be used as a unit root test against I ( d ) alternatives.

Keywords: Durbin-Watson statistic; unit root; fractional Brownian motion; JEL classification:C22 (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1080/07474939808800423

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