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Restricted Testing Procedure and Modified Dickey-Fuller Test

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Author Affiliations

  • 1Lecturer of Statistics, Department of Natural Science, Daffodil International University, Dhaka, BANGLADESH
  • 2Department of Statistics, Jahangirnagar University, Dhaka, BANGLADESH

Res. J. Mathematical & Statistical Sci., Volume 1, Issue (5), Pages 17-20, June,12 (2013)

Abstract

Usual test of testing unit root such as Dickey-Fuller (DF) test, Augmented Dickey-Fuller (ADF) test, Phillips-Perron (PP) test and Kwiatkowski- Phillips-Schmidt-Shin (KPSS) test ignore sign and boundary parameters. Ignorance of these problems may results in unusual estimate and test results. This paper demonstrates the ignorance of sign and boundary of parameters and consequences in estimation and hypothesis test by Monte Carlo simulation. This work proposes a distance-based optimum solution for testing unit root subject to the restriction of boundary and sign problem. Monte Carlo simulation study shows that the proposed one-sided test of testing unit root performs better than the usual tests interms of power property

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