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Shin Et Al-1998-Journal of Time Series Analysis
Shin Et Al-1998-Journal of Time Series Analysis
AND
WAYNE A. FULLER
1.
INTRODUCTION
Testing for a unit root in an autoregressive time series has attracted a great
deal of attention since the paper by Dickey and Fuller (1979). Some attempts
have been made to develop tests for models other than autoregressive models.
Said and Dickey (1984) approximated the autoregressive moving average by an
autoregressive model with long lags and applied ordinary least squares
estimation to develop tests for a unit root. In another paper, Said and Dickey
(1985) considered a nite-step NewtonRaphson procedure for conditional
Gaussian maximum likelihood estimation of the autoregressive moving-average
model. Phillips (1987) and Phillips and Perron (1988) proposed semiparametric
tests for models with a broad class of weakly dependent errors where the class
contains the autoregressive moving average as a special case. Schwert (1989)
performed a Monte Carlo experiment showing that, in the autoregressive
moving-average model of order (1, 1) (ARMA(1, 1)) all these tests have
undesirable size properties when the moving-average root is close to the
autoregressive unit root. Later, Pantula and Hall (1991) employed the
instrumental variable approach in an attempt to circumvent the nonlinear
estimation problem associated with the moving average. Yap and Reinsel (1995)
conducted a Monte Carlo study showing the size and power of the conditional
likelihood ratio test to be superior to tests such as the Said and Dickey (1984)
tests for an autoregressive unit root in the autoregressive moving average.
0143-9782/98/05 591599
JOURNAL OF TIME SERIES ANALYSIS Vol. 19, No. 5
# 1998 Blackwell Publishers Ltd., 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street,
Malden, MA 02148, USA.
592
All the above authors considered the rst observation to be xed and the
inferences were conditioned on the rst observation. Gonzalez-Farias (1992)
and Pantula et al. (1994) studied unconditional estimation for the autoregressive
model. The Gaussian distribution is assumed and the unconditional maximum
likelihood estimator based on the stationary likelihood is constructed. They
showed that the limiting distributions of tests based on the unconditional
estimators are different from those based on the conditional estimators. Based
on Monte Carlo studies, they concluded that tests based on the unconditional
likelihood estimator are more powerful than those based on the conditional
likelihood estimator for moderate sample sizes in autoregressive models.
Various aspects of the unit root tests are summarized in Fuller (1996, Ch. 10).
We consider unconditional maximum likelihood estimation for the autoregressive moving-average model and construct several tests. For the
ARMA(1, 1) model, the proposed unconditional likelihood ratio test has
empirical size close to the nominal level for the moving-average coefcient in
[0.8, 0.8]. Moreover, the unconditional test has signicantly better power than
the conditional likelihood ratio test of Yap and Reinsel (1995), the test based
on the ordinary least squares estimator of Said and Dickey (1984) and the test
based on the weighted symmetric estimator of Pantula et al. (1994).
In Section 2, unconditional likelihood and conditional likelihood are
considered. In Section 3, tests based on the unconditional maximum likelihood
estimator are proposed. In Section 4, a Monte Carlo experiment shows that the
new test works well in terms of size and power.
2.
(2:1)
(2:2)
z t 1 z t1 p z t p e t 1 e t1 q e tq
(2:3)
593
identity (m p1 1 m p p1 ) (m p)A(m). We assume the equations A(m) 0 and B(m) 0 have roots strictly inside the unit circle and have
no common roots.
To dene the Gaussian likelihood function, let 9 (9, 9) and let
Y ( y0 , . . ., y n )9
Y1 ( y1 , . . ., y n )9
Z (z1 , . . ., z n )9
Y0 ( y0 , . . ., y n1 )9
() var ( 1 Z) 2 E( ZZ9)
() var ( 1 Y ) 2 E(YY 9)
where () is dened only for jrj , 1. Dene the generalized conditional sum
of squares and unconditional sum of squares by
Q(jY ) (Y1 rY0 )9 1 ()(Y1 rY0 )
and
Qu (jY ) Y 9 1 ()Y
respectively. The conditional Gaussian log-likelihood and the unconditional
Gaussian log-likelihood are, except for constants,
C(, jY ) 21 f 2 Q(jY ) log det () n log 2 g
and
L(, jY ) 21 f 2 Qu (jY ) log det () (n 1) log 2 g
respectively. The unconditional log-likelihood L(, jY ) is a generalization of
the log-likelihood for the rst-order autoregressive process
( n
)
"
#
X
1
2
2
2
2
2
2
( y t r y t1 ) y0 (1 r ) log (1 r ) (n 1) log :
2
t1
^ maximizes
The unconditional maximum likelihood estimator (^
r, )
L(, jY ) and the conditional maximum likelihood estimator (~
r, ) maximizes
C( , jY ). The estimation space is set such that r > max i jm i j, where the
m i , i 1, . . ., p, are the roots of A(m) 0: Note that L(, jY ) is dened
^ is well dened regardless of
only when jrj , 1. However, the estimator (^
r, )
the true value of r.
In Theorem 1 below we demonstrate that the normalized conditional and
unconditional maximum likelihood estimators of r have the same limiting
distributions as those for the rst-order autoregressive model. The limiting
distributions are consequences of the consistency of the maximum likelihood
estimators established by Shin and Fuller (1996) together with the asymptotic
results for the GaussNewton estimators established by Dolado and HidalgoMoreno (1990). Proof of theorems can be obtained upon request.
THEOREM 1. Consider model (2.1) with one autoregressive unit root or,
equivalently, model (2.2)(2.3) with r 1. Assume that A(m) 0 and
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594
B(m) 0 have all roots strictly inside the unit circle and have no common
roots. Then
(i)
n(^
r 1) !(2G)1 [(T 2 1) f(T 2 1)2 2Gg1=2 ]
(2:4)
n(~
r 1) !(2G)1 (T 2 1)
(2:5)
1
where (G, T ) f 0 W 2 (r) dr, W (1)g, W (r) is a standard Brownian motion
L
on [0, 1] and ! denotes convergence in distribution.
(ii)
3.
TEST STATISTICS
In this section, we discuss various tests for an autoregressive unit root in the
autoregressive moving-average model (2.1). Since the mean-estimated model is
the most widely used, we present our method for the mean-estimated model. The
theory straightforwardly extends to the zero-intercept and trend-estimated
models. The mean-model unconditional and conditional log-likelihoods are
L (, , jY ) : L(, jY 1 n1 )
(3:1)
C (, , jY ) : C(, jY 1 n1 )
(3:2)
and
respectively, where 1 n1 (1, . . ., 1)9 is an (n 1) 3 1 vector of ones. Let
~, r
^, r
^ , ^ ) and (~
~ , ~ ) be the estimators obtained by maximizing
,
(^
,
the log-likelihood functions L (, , jY ) and C (, , jY ), respectively. The
unconditional maximum likelihood estimator provides the usual unit root tests
n(^
r 1)
^ (^
r 1)=SE(^
r)
(3:3)
^ .
where SE(^
r ) is the standard error of r
In conditional estimation, the likelihood ratio principle also provides a test.
Yap and Reinsel (1995) proposed a likelihood ratio statistic which is
asymptotically equivalent to
~, r
~0 , 1, ~ 0 jY )
~ C C (~
~ , ~ jY ) C (~
,
0 ,
(3:4)
595
0 ,
(3:5)
^ . 1 4=n
0
if r
^0 , ^ 0 ) maximizes L (, rm , , jY ). In an unreported simulation,
where (^
0 ,
the power of the one-sided likelihood ratio test given in (3.5) with
rm 1 =n was similar for all 2 [1, 10]. The limiting distributions of
the unconditional test statistics are the same as those of the rst-order
autoregressive model.
THEOREM 2. Assume the conditions of Theorem 1. Then the limiting
^ 1u are the
r 1), ^ and
distributions of the test statistics n(~
r 1), ~ , n(^
same as the respective denitions for the rst-order autoregressive model.
r 1) and
Expressions for the limiting distributions of fn(~
r 1), ~ g, n(^
^ are given in Fuller (1996, p. 561), Pantula et al. (1994) and Gonzalez-Farias
^ 1u is given by
(1992), respectively. The limiting distribution of
c
L
2
1 2
2
2
1
^
I (1,c] (A)
1u ! (c A)( H ) 2 (c A )(G H ) 2 log
A
1
where H 0 W (r) dr, 21 (T 2 1 2TH), I (1,C] (x) 1 if x < c,
I (1,C] (x) 0 otherwise, c 4, and A and B are the limiting distributions of
n(^
r 1) and ^ respectively.
4.
In this section, we compare several test criteria for the autoregressive unit root in
the rst-order model
y t r y t1 e t e t1
of (2.1). For this model, Schwert (1989) performed a simulation study which
compared sizes of tests based on the ordinary least squares estimator of Said and
Dickey (1984), the one-step NewtonRaphson estimator of Said and Dickey
(1985), and the semiparametric tests of Phillips (1987) and Phillips and Perron
(1988). One conclusion of Schwert's study is that all the tests have empirical
sizes that deviate from the nominal level when is close to one. Yap and Reinsel
(1995) reported simulation results which show that the likelihood ratio test has
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596
better size and power than those of the tests considered in the Schwert (1989)
study.
For our Monte Carlo study, we chose the parameter congurations r 1,
0.95, 0.90, 0.80; 0:8, 0.6, 0.4, 0.2, 0.0, 0.2, 0.4, 0.6, 0.8; n 100.
Observations y t were simulated by using standard normal errors e t generated
by RNNOA in IMSL (1989). In order to remove the starting effects, we
generated y t for t 19, . . ., n with y20 0 and discarded y t, t , 0, in
computing the statistics. Another IMSL routine for nonlinear optimization,
BCONG, was used to maximize the likelihoods.
~ c and
^ 1u . For
We report size and power performance of the tests ~ , ^ ,
our comparative study, we also include the t test, denoted by O, based on the
ordinary least squares estimator of Said and Dickey (1984), the t test, denoted
by W, based on the weighted symmetric estimator (Pantula et al., 1994) and
the semiparametric test, denoted by 4p, of Phillips (1987) and Phillips and
Perron (1988). The one-sided conditional likelihood ratio test given by
~ c if r
~ 1c 0 if r
~ 1c
~ , 1,
~ > 1, was also studied and found to be very
~
similar to c and hence is not reported here. The tests O and W are the t
statistics in a long-lag autoregression and weighted symmetric autoregression,
respectively, as studied by Pantula et al. (1994). The autoregressive orders are
determined by the Akaike information criterion. The statistic 4p is the
semiparametric test with window lag l [4(n=100)1=4 ], where [x] denotes the
integer part of x, as given in Schwert (1989).
In Table I, we report empirical sizes and powers of tests for the unit root
hypothesis r 1 against the stationary alternative r , 1. The nominal level is
5%. The table is based on 5000 independent samples for each parameter
combination.
In computing the empirical sizes and powers, we used the null percentiles of
~4p from Fuller (1996, Appendix A) and the null percentiles of ~O and ~W from
^ 1u, we used
~ c and
Pantula et al. (1994, Table 8). For the other tests
empirical percentiles computed from Monte Carlo simulations of the rst-order
autoregressive process. The percentiles from three sets of 20 000 independent
test statistics were averaged to obtain the percentiles. The critical values are
displayed in Table I.
^ 1u are given. The percentiles
In Table II, empirical 1%, 5%, 10% percentiles of
are averages of three percentiles, each computed from 20 000 replications of the
^ 1u than the
test for the rst-order autoregressive model. Larger values of statistic
percentiles lead to rejection of the unit root hypothesis r 1.
~ c and
^ 1u provide reasonable sizes for all considered with the
The tests
^
size performance of 1u being very good. The semiparametric test 4p has very
poor sizes for all jj > 0:2. The tests O and W have sizes that are larger than
the nominal level when is close to one, say . 0:5. The tests ~ and ^ have
very small sizes when . 0.
^ 1u
From the power results in Table I, we observe that the unconditional test
has the best powers except for a few cases with 0:8. A part of the power
advantage for some positive values of may be due to size distortion. When
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597
ROOT AGAINST
~c
^ 1u
4p
Empirical sizes
1.00
0.8
1.00
0.6
1.00
0.4
1.00
0.2
1.00
0.0
1.00
0.2
1.00
0.4
1.00
0.6
1.00
0.8
33.9
10.0
5.7
5.0
4.7
4.4
4.9
5.0
5.8
34.9
10.6
6.8
6.4
6.1
5.6
6.2
6.1
5.9
98.9
66.5
30.2
12.3
5.5
3.3
3.0
3.1
2.6
3.7
0.5
0.9
1.5
2.1
3.3
5.1
7.0
10.1
2.5
0.1
0.3
1.0
1.9
2.5
3.5
4.2
5.2
8.0
5.1
5.1
5.3
5.0
4.8
5.1
4.2
3.8
6.0
7.1
6.4
6.1
5.9
5.0
5.7
5.5
5.4
Critical values
2.89
2.60
2.90
2.89
2.66
4.10
1.75
Empirical powers
0.95
0.8
0.95
0.6
0.95
0.4
0.95
0.2
0.95
0.0
0.95
0.2
0.95
0.4
0.95
0.6
0.95
0.8
64.8
24.4
14.2
11.9
11.8
10.5
11.1
11.8
13.5
68.1
32.6
22.1
19.6
20.4
18.2
18.7
18.4
19.2
100.0
97.0
67.3
30.4
14.4
8.0
5.9
4.9
4.9
8.5
1.1
1.0
2.5
5.4
7.4
9.4
12.1
15.5
4.5
0.7
0.8
3.4
8.7
10.7
13.5
15.4
18.5
17.5
12.5
11.7
11.6
12.9
11.5
10.9
9.8
8.8
11.7
22.5
21.8
21.0
21.8
20.7
21.4
21.3
22.3
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.8
0.6
0.4
0.2
0.0
0.2
0.4
0.6
0.8
88.4
50.0
33.3
29.2
27.4
24.1
23.9
22.1
24.0
89.6
61.4
48.5
45.1
43.2
39.4
38.1
35.1
34.0
100.0
100.0
94.8
66.8
36.9
20.5
15.4
12.6
12.6
18.3
2.5
2.4
7.1
13.5
19.6
25.4
29.4
33.1
5.9
1.5
2.1
10.5
22.2
30.1
37.2
41.8
45.8
27.8
26.7
28.8
30.1
32.2
29.7
29.2
25.9
21.5
11.4
41.5
48.5
50.2
50.4
50.5
51.0
54.3
55.5
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.6
0.4
0.2
0.0
0.2
0.4
0.6
0.8
85.1
74.0
68.2
66.3
59.1
55.1
48.6
42.3
90.1
85.1
82.4
81.6
77.3
72.0
64.6
56.5
100.0
100.0
98.6
88.4
71.3
58.1
51.4
48.2
8.9
6.6
21.4
44.2
62.6
74.1
80.2
80.2
7.9
5.2
25.6
60.7
80.4
88.8
92.5
92.4
46.7
62.5
69.9
77.2
80.8
79.5
74.1
61.2
45.4
81.1
88.7
92.3
95.1
95.8
96.7
97.2
0 < , 0:5, the weighted symmetric test W has power comparable with the
^ 1u . However, when , 0, the power of W is smaller than
unconditional test
^
that of 1u and sizes are comparable.
The poor size of ~ was observed by Schwert (1989) and Yap and Reinsel
(1995). The unconditional test ^ has size similar to ~ but is more powerful
^ 1u is more powerful than the conditional test
than ~ . The unconditional test
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598
0.10
0.05
0.01
25
50
100
250
500
1.02
1.06
1.07
1.07
1.08
1.68
1.75
1.75
1.76
1.77
3.33
3.41
3.41
3.44
3.46
improves the powers of unit root tests with comparable size performance.
^ 1u has the best performance in that
The unconditional likelihood ratio test
it has reasonable sizes for all under study and has the highest power in most
situations. The good performance of the unconditional tests in the ARMA(1, 1)
model is consistent with Pantula et al. (1994)'s recommendation of the use of
the unconditional tests or the weighted symmetric tests for the rst-order
autoregressive model.
It should be remembered that the likelihood ratio tests are based on the
correct model, while the weighted symmetric and least squares tests attempt to
estimate a best approximating autoregressive model with no knowledge of the
true model. Therefore, it is not surprising that for the autoregressive movingaverage model the unconditional tests have better powers than the tests that
estimate the order.
ACKNOWLEDGMENT
The authors thank a referee for valuable comments. This research was partly
supported by Cooperative Agreement 43-3AEU-3-80088 with the National
Agricultural Statistics Service and the US Bureau of the Census.
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GONZALEZ-FARIAS, G. M. (1992) A new unit root test for autoregressive time series. Unpublished
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