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The size of the nonstationary component and its effect on tests for unit roots

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Abstract

We consider a nonstationary time series that is composed of a stationary and nonstationary component. Monte Carlo experiments show that common unit root tests have probabilities of committing a type I error that significantly exceed the level of significance. We find that the probabilities vary according to the relative size of the nonstationary component.

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Authors and Affiliations

  1. Department of Economics, University of Miami, P.O. Box 248126, 33124, Coral Gables, FL

    P. C. Liu

  2. Department of Economics, University of Florida, 224 Matherly Hall, 32611, Gainesville, FL

    J. Praschnik

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  1. P. C. Liu
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  2. J. Praschnik
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Liu, P.C., Praschnik, J. The size of the nonstationary component and its effect on tests for unit roots. Statistical Papers 34, 83–88 (1993). https://doi.org/10.1007/BF02925529

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  • DOI: https://doi.org/10.1007/BF02925529

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