The relationship between power and level for generic unit root tests in finite samples
Author:
- 1 July 1992
- journal article
- research article
- Published by Wiley in Journal of Applied Econometrics
- Vol. 7 (3) , 295-308
Abstract
We show that the maximum power of a generic unit root test against any stationary alternative is equal to the true level of the test. We then use Monte Carlo methods to investigate the implications for several such tests. We show patterns of rejection probabilities over a variety of unit root and stationary processes. We discuss the implications of these results for some of the uses of unit root tests in applied work.Keywords
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