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RE: st: Appropriate lags for Augmented Dickey-Fuller Test


From   Ihtesham Afzal <ihtesham_afzal@hotmail.co.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: Appropriate lags for Augmented Dickey-Fuller Test
Date   Thu, 27 Aug 2009 19:26:21 +0100

Thank you again.
 
If I do decide to go with the -dfgls- command, could you please help me interpret the results? i.e. is the time-series stationary?
. dfgls lCPI
 
DF-GLS for lCPI                                          Number of obs =   284
Maxlag = 15 chosen by Schwert criterion
 
               DF-GLS tau      1% Critical       5% Critical      10% Critical
  [lags]     Test Statistic        Value             Value             Value
------------------------------------------------------------------------------
    15           -0.614           -3.480            -2.815            -2.535
    14           -0.659           -3.480            -2.823            -2.542
    13           -0.787           -3.480            -2.830            -2.549
    12           -1.235           -3.480            -2.838            -2.555
    11           -0.351           -3.480            -2.845            -2.562
    10           -0.285           -3.480            -2.851            -2.568
    9            -0.223           -3.480            -2.858            -2.574
    8            -0.327           -3.480            -2.865            -2.580
    7            -0.381           -3.480            -2.871            -2.586
    6            -0.457           -3.480            -2.877            -2.591
    5            -0.254           -3.480            -2.883            -2.596
    4            -0.164           -3.480            -2.888            -2.601
    3            -0.084           -3.480            -2.894            -2.606
    2            -0.233           -3.480            -2.899            -2.611
    1            -0.206           -3.480            -2.903            -2.615
 
Opt Lag (Ng-Perron seq t) = 13 with RMSE  .0030169
Min SC   = -11.32856 at lag 13 with RMSE  .0030169
Min MAIC = -11.51094 at lag 14 with RMSE   .003008
 
 
Kind Regards
Ihtesham

----------------------------------------
> Date: Thu, 27 Aug 2009 16:31:36 +0100
> Subject: Re: st: Appropriate lags for Augmented Dickey-Fuller Test
> From: tirthankar.chakravarty@gmail.com
> To: statalist@hsphsun2.harvard.edu
>
> -pperron- does not use lags to correct for serial correlation in the
> Dickey-Fuller regressions and instead uses a Newey-West type robust
> variance-covariance matrix to calulate the standard errors. However,
> please see [TS] pperron documentation for cases when the
> Phillips-Perron test is not applicable.
>
> If you are going to use -dfuller-, you might look at -varsoc- for
> lag-length selection.
>
> You also do not specify a trend or drift terms in your -dfuller-. You
> need to be sure that this is indeed the case, a very good preliminary
> strategy is to visualise the data to see if there is a deterministic
> trend in it.
>
> T
>
> 2009/8/27 Ihtesham Afzal :
>>
>> Thanks again for your reply.
>> I think I will use the dfuller, lags(#) command as I think that is sufficient for the test I am lookinf to do
>> Just one question though. I was made aware that I dont need to include a lags(#) term for the Phillips-Perron test does not need the lagged values.
>> Is this correct?
>> Thank you
>> Regards
>> Ihtesham
>> ----------------------------------------
>>> Date: Thu, 27 Aug 2009 13:58:57 +0100
>>> Subject: Re: st: Appropriate lags for Augmented Dickey-Fuller Test
>>> From: tirthankar.chakravarty@gmail.com
>>> To: statalist@hsphsun2.harvard.edu
>>>
>>> Not really. -dfuller- provides what are called parametric augmented
>>> Dickey-Fuller (ADF) tests, which require explicit specification of the
>>> (linear) trend component. -dfgls- belongs to a class of efficient ADF
>>> unit root tests, which involve running the ADF tests on
>>> quasi-differenced series (wherby a trend is extracted by GLS
>>> detrending) - leading, typically, to greater power properties.
>>>
>>> In either case, -dfuller- does not include a trend by default and
>>> -dfgls- does. So as you are using them, they are not comparable. For
>>> quick diagnostics on unit roots, I prefer -dfgls-.
>>>
>>> I can point you to the excellent exposition in Phillips and Xiao
>>> (1998) & [TS] dfgls.
>>>
>>> --- References ---
>>> @article{phillips1998primer,
>>> title={{A Primer on Unit Root Testing}},
>>> author={Phillips, P.C.B. and Xiao, Z.},
>>> journal={Journal of Economic Surveys},
>>> volume={12},
>>> number={5},
>>> pages={423--470},
>>> year={1998},
>>> publisher={Blackwell Publishers Ltd}
>>> }
>>>
>>>
>>>
>>> 2009/8/27 Ihtesham Afzal :
>>>> Hello, first of all, thanks for the reply.
>>>> Here is the output. From this can I infer that the lags i should use is 14 (if I use the MAIC)and thus conduct the ADF test with 14 lags as I have done below?
>>>> Is this the correct procedure.
>>>> Kinds Regards.
>>>> Ihtesham
>>>>
>>>>
>>>> . dfgls lCPI
>>>>
>>>> DF-GLS for lCPI Number of obs = 284
>>>> Maxlag = 15 chosen by Schwert criterion
>>>>
>>>> DF-GLS tau 1% Critical 5% Critical 10% Critical
>>>> [lags] Test Statistic Value Value Value
>>>> ------------------------------------------------------------------------------
>>>> 15 -0.614 -3.480 -2.815 -2.535
>>>> 14 -0.659 -3.480 -2.823 -2.542
>>>> 13 -0.787 -3.480 -2.830 -2.549
>>>> 12 -1.235 -3.480 -2.838 -2.555
>>>> 11 -0.351 -3.480 -2.845 -2.562
>>>> 10 -0.285 -3.480 -2.851 -2.568
>>>> 9 -0.223 -3.480 -2.858 -2.574
>>>> 8 -0.327 -3.480 -2.865 -2.580
>>>> 7 -0.381 -3.480 -2.871 -2.586
>>>> 6 -0.457 -3.480 -2.877 -2.591
>>>> 5 -0.254 -3.480 -2.883 -2.596
>>>> 4 -0.164 -3.480 -2.888 -2.601
>>>> 3 -0.084 -3.480 -2.894 -2.606
>>>> 2 -0.233 -3.480 -2.899 -2.611
>>>> 1 -0.206 -3.480 -2.903 -2.615
>>>>
>>>> Opt Lag (Ng-Perron seq t) = 13 with RMSE .0030169
>>>> Min SC = -11.32856 at lag 13 with RMSE .0030169
>>>> Min MAIC = -11.51094 at lag 14 with RMSE .003008
>>>>
>>>>
>>>> . dfuller lCPI, lags(14)
>>>> Augmented Dickey-Fuller test for unit root Number of obs = 285
>>>> ---------- Interpolated Dickey-Fuller ---------
>>>> Test 1% Critical 5% Critical 10% Critical
>>>> Statistic Value Value Value
>>>> ------------------------------------------------------------------------------
>>>> Z(t) -1.980 -3.457 -2.879 -2.570
>>>> ------------------------------------------------------------------------------
>>>> MacKinnon approximate p-value for Z(t) = 0.2955
>>>>
>>>>
>>>> ----------------------------------------
>>>>> Date: Thu, 27 Aug 2009 12:59:34 +0100
>>>>> Subject: Re: st: Appropriate lags for Augmented Dickey-Fuller Test
>>>>> From: tirthankar.chakravarty@gmail.com
>>>>> To: statalist@hsphsun2.harvard.edu
>>>>>
>>>>> <>
>>>>> -dfgls- reports three different criteria for lag selection:
>>>>>
>>>>> 1) Ng-Perron
>>>>> 2) Schwarz
>>>>> 3) Modified AIC
>>>>>
>>>>> and reports tests upto a max. lag determined by the Schwert criteria.
>>>>>
>>>>> T
>>>>>
>>>>> On Thu, Aug 27, 2009 at 12:39 PM, Ihtesham
>>>>> Afzal wrote:
>>>>>> Hello.
>>>>>> Just a quick question.
>>>>>> When undergoing the Augmented Dickey Fuller Test, how do I decide on how many lags to include for each series?
>>>>>> Do I estimate the AR(p) model with different p-lag values and then find the one with the lowest AIC/BIC value?
>>>>>>
>>>>>> Kind Regards.
>>>>>>
>>>>>> Ihtesham
>>>>>> _________________________________________________________________
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>>>>>
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>>>
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>
>
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>
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