PHYS 1061 Study Guide - Quiz Guide: Data Collection, Unit Root, Autocorrelation
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If h0 is rejected we simply conclude that yt does not contain a unit root. We would continue to test for a further unit root until we rejected h0. We now regress 2yt on yt-1 (plus lags of 2yt if necessary). Now we test h0: yt i(1) which is equivalent to h0: yt i(2). So in this case, if we do not reject (unlikely), we conclude that yt is at least i(2). Phillips and perron have developed a more comprehensive theory of unit root nonstationarity. The tests are similar to adf tests, but they incorporate an automatic correction to the df procedure to allow for autocorrelated residuals. The tests usually give the same conclusions as the adf tests, and the calculation of the test statistics is complex. Main criticism is that the power of the tests is low if the process is stationary but with a root close to the non-stationary boundary. e. g. the tests are poor at deciding if.
