Scrutinizing the capacity of unit root tests in detecting non-stationary time series
Date of Publication
2009
Document Type
Master's Thesis
Degree Name
Master of Science in Economics
College
School of Economics
Department/Unit
Economics
Thesis Adviser
Lawrence B. Dacuycuy
Abstract/Summary
Time series data such as asset prices, gross domestic product, and exchange rates almost always exhibit non-stationary in the mean. Hence, a mandatory econometric task before performing time series analysis is to determine whether the series is stationary to avoid spurious regression results. Non-stationary time series can be detected through various unit root testing procedures such as the Augmented Dickey-Fuller (ADF) and Phillips-Perron. As such, this study exposits unit root testing in detecting non-stationary and analyzes its respective capacity given the various statistical properties present. Results show that the ADF and PP unit root tests perform relatively the same with each other. However, the ADF test is more efficient in detecting that a random walk, random walk with drift, and random walk with drift along a deterministic trend is non-stationary while the PP test is more efficient in detecting stationary among the family of AR(1) data generating processes (DGPs). However, there are instances where the ADF and PP tests may not agree with each other. Thus, the properties of the DGP and the descriptive statistics of a series must be considered in deciding which unit root test to use and which unit root test must prevail. Unit root testing must be taken seriously in empirical research. The accurate detection of stationarity in time series is vital on the selection of the best DGP for accurate time series analyses.
Abstract Format
html
Language
English
Format
Accession Number
TG05412
Shelf Location
Archives, The Learning Commons, 12F Henry Sy Sr. Hall
Physical Description
39 leaves ; 28 cm.
Recommended Citation
Rivera, J. (2009). Scrutinizing the capacity of unit root tests in detecting non-stationary time series. Retrieved from https://animorepository.dlsu.edu.ph/etd_masteral/4424