Lag length selection and the construction of unit root tests with good size and power-英文文献.pdf
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Lag length selection and the construction of unit root tests with good size and power-英文文献
LAG LENGTH SELECTION AND THE CONSTRUCTION OF UNIT ROOT
TESTS WITH GOOD SIZE AND POWER
Serena Ng ∗ Pierre Perron †
September 2000
Abstract
It is widely known that when there are errors with a moving-average root close to −1, a
high order augmented autoregression is necessary for unit root tests to have good size, but
that information criteria such as the AIC and the BIC tend to select a truncation lag (k)
that is very small. We consider a class of Modified Information Criteria (MIC ) with a penalty
factor that is sample dependent. It takes into account the fact that the bias in the sum of
the autoregressive coefficients is highly dependent on k and adapts to the type of deterministic
components present. We use a local asymptotic framework in which the moving-average root
is local to −1 to document how the MIC performs better in selecting appropriate values of k.
In monte-carlo experiments, the MIC is found to yield huge size improvements to the DF GLS
and the feasible point optimal PT test developed in Elliott, Rothenberg and Stock (1996). We
also extend the M tests developed in Perron and Ng (1996) to allow for GLS detrending of the
data. The MIC along with GLS detrended data yield a set of tests with desirable size and
power properties.
Keywords: Integrated processes, truncation lag, GLS detrending, information criteria.
JEL Classification: C2,C3,C5
∗Department of Economics, Boston College, Chestnut Hill, MA, 02467. Email: serena.ng@bc.edu
†Department of Economics, Boston University, 270 Bay State Rd
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