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Lag truncation and the local asymptotic distribution of the ADF test for a unit root

journal contribution
posted on 2019-12-01, 00:00 authored by E Aylar, S Smeekes, Joakim WesterlundJoakim Westerlund
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.

History

Journal

Statistical papers

Volume

60

Issue

6

Pagination

2109 - 2118

Publisher

Springer

Location

Berlin, Germany

ISSN

0932-5026

Language

eng

Publication classification

C1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2017, The Authors