COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 795R "Testing for a Unit Root in Time Series Regression" Peter C.B. Phillips and Pierre Perron July 1986 This paper proposes some new tests for detecting the presence of a unit root in quite
general time series models. Our approach is nonparametric with respect to nuisance
parameters and thereby allows for a very wide class of weakly dependent and possibly
heterogeneously distributed data. The tests accommodate models with a fitted drift and a
time trend so that they may be used to discriminate between unit root nonstationarity and
stationarity about a deterministic trend. The limiting distributions of the statistics are
obtained under both the unit root null and a sequence of local alternatives. The latter
noncentral distribution theory yields local asymptotic power functions for the tests and
facilitates comparisons with alternative procedures due to Dickey and Fuller. Some
simulations are reported which provide evidence on the performance of the new tests in
finite samples. |
