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st: how zandrews command chooses k lags by t-stat test


From   Mark <statalist528h5q@feldmark.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: how zandrews command chooses k lags by t-stat test
Date   Sat, 20 May 2006 17:05:01 +0800

I have been reading thru the code for the zandrews command which does an ADF style unit root test with one break. I am wondering whether one detail is actually implemented as was described in the paper.

In Zivot and Andrews (1992), p. 255, it says that "It is important to note that the number of extra regressors, k, required for the ADF regressions was allowed to vary for each tentative choice of lambda."

The way I read this, you need to re-calculate k for each tentative break date. Computationally intensive, but makes sense. But as I read the code for the zandrews command, it appears to calculate k only once at the beginning, in fact without any breaks at all. Then it seems to use that same value for every regression over which you minimize the t-statistic of the lagged regressand, which you test to identify a unit root.

I am wondering if I am interpreting this correctly. If so, it seems like a nice heuristic, but different from what is in the original paper....

Mark

References:

Zivot, Eric and Donald W.K. Andrews, (1992) “Further Evidence on the Great Crash, the Oil-Price Shock and the Unit-Root Hypothesis”; Journal of Business and Economic Statistics; July; Vol 10, No. 3:251-270.
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