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Biometrika 1995 82(3):660-666; doi:10.1093/biomet/82.3.660
© 1995 by Biometrika Trust
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MISCELLANEA

The power of modified instrumental variables tests for unit roots

HONGYI LI

Department of Economics, The Ohio State University Columbus, Ohio 43210-1172, U. S.A.

Received for publication 1 July 1994. Revision received 1 February 1995.
  Abstract

In this paper we investigate the power of Hall's (1989) instrumental variables tests for unit roots. A slight modification is made to Hall's t statistic so that the modified t statistic can be applied directly without encountering the possible negative standard error problem of Hall's original t statistic. The major finding is that the power curves of the instrumental variables tests are not monotonic functions of the autoregressive coefficient of the unit root models when there is a negative moving average component.

Key Words: Instrumental variables estimator • Moving average errors • Time series • Unit root


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