1. weak stationarity

Source: Enders 2003:213 Example

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Source: Enders 2003:213

Example

We would like to perform unit roots for the ln_VAT

Step1: Perform ADF test using the most general structure and record statistic

i.e VAT has a unit root (random walk with drift and time trend)

i.e. VAT is stationary

In Eviews this is very easy since the unit root options are sufficient. The initial selection lag order ,k, should be determined as i.e. integer of . The alternative is to use the automatic lag selection criteria such as the Bayesian information criterion, Swartz information criterion, Akaike information criterion

Go to view/unit root test

ADF Test Statistic	-0.349651	1% Critical Value*		-3.5572
		5% Critical Value		-2.9167
		10% Critical Value		-2.5958
*MacKinnon critical values for rejection of hypothesis of a unit root.


Augmented Dickey-Fuller Test Equation
Dependent Variable: D(LN_VAT)
Method: Least Squares
Date: 11/13/09 Time: 16:50
Sample(adjusted): 2002 2054
Included observations: 53 after adjusting endpoints
Variable	Coefficient	Std. Error	t-Statistic	Prob.
LN_VAT(-1)	-0.020222	0.057835	-0.349651	0.7281
D(LN_VAT(-1))	-0.493401	0.118000	-4.181357	0.0001
C	0.205849	0.489533	0.420501	0.6759
R-squared	0.282226	Mean dependent var		0.019825
Adjusted R-squared	0.253516	S.D. dependent var		0.193443
S.E. of regression	0.167134	Akaike info criterion		-0.685106
Sum squared resid	1.396684	Schwarz criterion		-0.573580
Log likelihood	21.15531	F-statistic		9.829928
Durbin-Watson stat	2.091018	Prob(F-statistic)		0.000251

Perform hypothesis test using the critical values from Eviews. Remember that the the ADF unit root test is left tail.

In our case we cannot reject the null of unit roots(Remember the ADF test is a left tail test).

In our case the computed ADF statistic is in the acceptance/fail to reject region. Thus we fail to reject the null hypothesis that money supply m3 has unit roots with drift and time trend.

Repeat the test

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