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The relationship between power and level for generic unit root tests in finite samples
Author(s) -
Blough Stephen R.
Publication year - 1992
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950070306
Subject(s) - unit root , unit root test , monte carlo method , root (linguistics) , unit (ring theory) , power (physics) , mathematics , variety (cybernetics) , statistics , econometrics , computer science , physics , cointegration , philosophy , linguistics , mathematics education , quantum mechanics
We show that the maximum power of a generic unit root test against any stationary alternative is equal to the true level of the test. We then use Monte Carlo methods to investigate the implications for several such tests. We show patterns of rejection probabilities over a variety of unit root and stationary processes. We discuss the implications of these results for some of the uses of unit root tests in applied work.