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Power functions and envelopes for unit root tests
Juhl, Ted P. Xiao, Zhijie
Juhl, Ted P.
Xiao, Zhijie
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Abstract
This paper studies power functions and envelopes for covariate augmented unit root tests. The power functions are calculated by integrating the characteristic function, allowing accurate evaluation of the power envelope and the power functions. Using the power functions, we study the selection among point optimal invariant unit root tests. An "optimal" point optimal test is proposed based on minimizing the integrated power difference. We find that when there are covariate effects, optimal tests use a local alternative where the power envelope has an approximate value of 0.75.
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2003-04
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CAMBRIDGE UNIV PRESS
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Juhl, T; Xiao, ZJ. Power functions and envelopes for unit root tests. ECONOMETRIC THEORY. April 2003. 19(2) : 240-253