Case u rt1: Unit Root Tests – More Examples

1. 
   Three types of Unit Root Test
   
   
   

For each test:

(a) Understand both H₀ and H₁.

(b) Learn how to implement:

Add Y_(t-1) , Y_(t-2), etc.

2. 
   How To Select Proper Unit Root Test?

   Personal opinion

   
   
   
   

1. 
   Note the model of the alternative H₁. ->  test can be easily rejected.
   
   
   
2. 
   If the first difference has clearly non-zero mean, then choose _ test.
   
   
   

1. 
   The nature of the variable precludes the existence of a unit root.
   
2. 
   In the absence of a unit root, the most plausible process is AR(2) with non-zero mean.
   

Hypotheses:

Test Using Regression: