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Power of a Unit‐Root Test and the Initial Condition
Author(s) -
Harvey David I.,
Leybourne Stephen J.
Publication year - 2006
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/j.1467-9892.2006.00486.x
Subject(s) - mathematics , unit root , unit root test , range (aeronautics) , test (biology) , power (physics) , root (linguistics) , simple (philosophy) , statistics , augmented dickey–fuller test , econometrics , paleontology , linguistics , materials science , physics , philosophy , cointegration , epistemology , quantum mechanics , composite material , biology
Abstract. It is now well known that how the initial observation is generated can have a significant effect on the power of a unit‐root test. In this article, we show that by taking a simple data‐dependent weighted average of the initial condition‐robust test of Elliott and Müller [Journal of Econometrics (2006), forthcoming] and the standard augmented Dickey–Fuller test, we are able to produce a new unit‐root test that can improve power, both asymptotically and in finite samples, over a wide range of possibilities governing the generation of the initial observation.