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A simple testing procedure for unit root and model specification

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  • Costantini, Mauro
  • Sen, Amit

Abstract

Tests for the joint null hypothesis of a unit root based on the components representation of a time series are developed. The proposed testing procedure is designed to detect a unit root as well as guide the practitioner regarding the specification of trend component of a time series. The limiting null distributions of the newly developed F-statistics are derived. Finite sample simulation evidence shows that the F-statistics maintain their size, and have power against the trend-break stationary alternative. The use of our methodology is illustrated through an empirical examination of the US–UK real exchange rate, the UK industrial production, and the UK CPI series.

Suggested Citation

  • Costantini, Mauro & Sen, Amit, 2016. "A simple testing procedure for unit root and model specification," Computational Statistics & Data Analysis, Elsevier, vol. 102(C), pages 37-54.
    • Handle: RePEc:eee:csdana:v:102:y:2016:i:c:p:37-54
    DOI: 10.1016/j.csda.2016.04.001
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