Testing for a Unit Root in the Presence of Deterministic Trends

Peter Phillips and Peter Schmidt

No 933, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper provides a new unit root test based on an alternative parameterization which has previously been considered by Bhargava (1986). This parameterization allows for trend under both the null and the alternative, without introducing any parameters that are irrelevant under either. This is not so in the Dickey-Fuller parameterizations. The new test is extracted from the score or LM principle under the assumption that the errors are iid N(0, sigma squared (epsilon)), but our asymptotics hold under more general assumptions about the errors. Two forms of the test (a coefficient test and at t-test) are derived.

Keywords: Unit root; time series; random walk; co-integration (search for similar items in EconPapers)
Pages: 37 pages
Date: 1989-10
Note: CFP 820.
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Citations: View citations in EconPapers (19)

Published in Oxford Bulletin of Economics and Statistics (1992), 54(3): 257-287

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Working Paper: Testing forUnit Root in the Presence of Deterministic Trends (1990)
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