When is a Time Series I(0)?

James Davidson ()

No 811, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper surveys the extensive recent literature on the problems of deciding what is meant by an I(0) process, and then deciding how to test for the property. A formidable difficulty exists in the construction of consistent and asymptotically correctly sized tests for the I(0) hypothesis, and this may appear to place a question mark over the validity of a large area of econometric theory and practice. To overcome these difficulties in practical applications, the paper proposes that a slightly different question needs to be posed, relating to the adequacy of approximation to asymptotic inference criteria in finite samples. A simulation-based test, aimed at discriminating between data sets on this basis, is examined in a Monte Carlo experiment.

Date: 2008
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