Joakim Westerlund
Professor, Programme director – Master of Data Analytics and Business Economics
Lag truncation and the local asymptotic distribution of the ADF test for a unit root
Author
Summary, in English
The issue of lag selection in ADF unit root testing is important, even asymptotically, for if the number of lags is not allowed to increase at a certain rate the test might not be correctly sized. However, size control is not the only concern. Indeed, simulations have repeatedly shown how increasing lag lengths tend to be associated with reductions in power, thus adding to the well-known low power problem when the alternative is local to the unit root. But while the simulation evidence is plentiful, there is as of yet almost no asymptotic results that can be used to ascertain whether lag length has any effect on the local asymptotic power of the ADF test. The purpose of the present paper is to fill this gap in the literature.
Department/s
- Department of Economics
Publishing year
2019-12
Language
English
Pages
2109-2118
Publication/Series
Statistical Papers
Volume
60
Issue
6
Document type
Journal article
Publisher
Springer
Topic
- Probability Theory and Statistics
Keywords
- ADF test
- Lag selection
- Local asymptotic power
- Unit root testing
Status
Published
ISBN/ISSN/Other
- ISSN: 0932-5026