Ratio tests of a unit root

Abstract

Based on the maximal invariant principle, we derive two ratio tests (locally best invariant test and point optimal test) for a unit root and compare them with previously proposed ratio tests. We also show that our ratio tests tend to have better powers than the Dickey-Fuller test and the modified Dickey-Fuller test.

Keywords:

• unit root
• locally best invariant test
• point optimal test

Additional information

Notes on contributors

Teruo Nakatsuma

Elena Gouskova

Jinichi Uemura