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

Niels Haldrup () and Peter Lildholdt ()
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Peter Lildholdt: Department of Economics, University of Aarhus, Denmark, Postal: 8000 Aarhus C, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We examine some of the consequences on commonly used unit root tests when the underlying series is integrated of order two. 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 test is shown to diverge to plus infinity asymptotically and thus will favor the explosive alternative. Numerical simulations are used to demonstrate the analytical results and some of the implications in finite samples.

Keywords: Unit root tests; Phillips-Perron test; I(1) versus I(2) (search for similar items in EconPapers)
JEL-codes: C12 C14 C22 (search for similar items in EconPapers)
Pages: 18
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: On the Robustness of Unit Root Tests in the Presence of Double Unit Roots (2002)
Working Paper: On the Robustness of Unit Root Tests in the Presence of Double Unit Roots (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2000-1

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