Stasioneritas

Applied Econometrics
Second edition
Dimitrios Asteriou and
Stephen G. Hall
Chapter 16:
Non-Stationarity and Unit Root Tests
Non-stationarity and Unit Root Tests
1. Introduction
2. Unit roots and spurious regressions
3. Testing for unit roots
Learning Objectives
1. Understand stationarity
2. Explain differences between stationary and non-stationary time
series processes
3. Understand importance of stationarity and spurious regressions
4. Understand the concept of unit roots in time series
5. Understand the meaning of the statement “the series is integrated
for order 1” or I(1)
6. Learn Dickey–Fuller (DF) test procedure for testing for unit roots
7. Differentiate among three different DF models for unit root testing
8. Learn Augmented Dickey–Fuller (ADF) test
9. Learn Philips-Perron (PP) test procedure
10. Estimate DF, ADF and PP tests using appropriate software
Introduction
In stationary time series, shocks will be temporary
and over time their effects will be eliminated as
the series revert to their long-run mean values.
Non-stationary time series will necessarily contain
permanent components.
A stationary series (correlogram) will die out
quickly as the lag-length increases, a non-
stationarity time series will not die out for
increasing lag length.
What is a Unit Root
Consider the AR(1) model
Where et is a random noise process and the

stationarity condition is
What is a Unit Root (2)
Subtracting yt-1 from both sides we have:
Definition 1
A series yt is integrated of order one (denoted by
yt ~I(1)) and contains a unit root, if yt is non-
stationary but Δyt is stationary.
Definition 2
A series yt is integrated of order d (denoted by yt
~I(d)) if yt is non-stationary but is Δdyt is
stationary.
EViews Examples
Smpl @first @first+1
Genr y=0
Genr x=0
Genr z=0
Smpl @first+1 @last
Genr z=0.67*z(-1)+nrnd
Genr y=1.16*y(-1)+nrnd
Genr x=x(-1)+nrnd
Plot y
Plot y
Plot z
Spurious Regressions
More formally, consider the model:
A spurious regression usually has a very high R2,

t-statistic that appear to provide significant
estimates, but the results may have no
economic meaning whatsoever.
Spurious Regressions (2)
Most macroeconomic time series are trended
and, therefore, in most cases non-stationary.
The problem with non-stationary or trended
data is that standard OLS regression
procedures can easily lead to incorrect
conclusions.
Granger and Newbold (1974) constructed Monte
Carlo analysis generating a large number of yt
and xt series containing unit roots following the
formulas:
Where eyt and ext are artificially generated normal

random numbers.
When they regressed the various yts to the xts
they surprisingly found that they were unable
to reject the null hypothesis of β2=0 in
approximately 75% of cases.
They also found that their regressions had very
high R2s and very low values of DW statistic.
Granger and Newbold (1974) proposed the
following rule of thumb for detecting spurious
regressions: If R2>DW-statistic or R2 very close
to 1, then the regression must be spurious.
Explanation of spurious regression problem
When variables become non-stationary then one
cannot guarantee that errors will be stationary,
and as general rule the error itself becomes
non-stationary; when this happens we violate
the basic assumptions of OLS.
If the errors were non-stationary we would
expect them to wander around and eventually
become large.
EViews Examples
Smpl @first @first+1
Genr y=0
Genr x=0
Smpl @first+1 @last
Genr y=y(-1)+nrnd
Genr x=x(-1)+nrnd
Scat (r) y x
Smpl @first @last
ls y c x
Testing for Unit Roots
Simple Dickey-Fuller test for units
Dickey and Fuller (1979, 1981) devised a
procedure to formally test for non-stationary.
Key insight of their test is testing for the
existence of a unit root.
They start with the simple AR(1) model.
Testing for Unit Roots (2)
They start with the simple AR(1) model.
We need to examine whether is equal to 1.

Τhe null hypothesis is:
and the alternative hypothesis is:
where of course
Now null hypothesis is:
And alternative hypothesis is:
where if γ = 0 then yt follows a pure random walk
Dickey and Fuller (1979) proposed three alternative
regression equations for testing presence of unit
root.
The first has no constant – no trend:
The second contains a constant – no trend:
The third contains both a constant and a trend:

Augmented Dickey-Fuller (ADF) test for unit
roots
As error term is unlikely to be white noise, Dickey
and Fuller extended their test procedure
suggesting an augmented version of test which
includes extra lagged terms of the dependent
variable in order to eliminate autocorrelation.
The lag length on these extra term is either
determined by AIC or BIC.
The three possible forms of the ADF test are given by
the following equations:
Phillips-Perron test
The distribution theory supporting the Dickey-
Fuller tests is based on the assumption that the
error terms are statistically independent and
have a constant variance.
Phillips-Perron (1988) developed a generalization
of ADF test procedure that allows for fairly mild
assumptions concerning distribution of errors.
The test regression for the Phillips-Perron (pp)
test is the AR(1) process:
The PP test makes a correction to the t statistic

of the coefficient γ from the AR(1) regression
to account for the serial correlation in et.
• Step stasioneritas Time-series

1. Select variabel dan klik 2x
2. Klik view > Unit root test
3. Pilih uji stasioneritas > ADF, PP, atau
KPSS
4. Test unit root > level or first-diff
5. Test equation > intercept or intercept and
trend
6. Tekan ok
Panel Unit Root
Permodelan time-series dengan data panel juga harus
dilakukan stasioneritas. Seperti Panel ARDL, Panel
Var, Panel VECM dan juga sebagai integritas data I(0)
atau I(1)
Akan tetapi berbeda uji stasionerias dengan times-
series sendiri.
1. Levin, Lin, Chi (LLC)
2. Im, Pesaran, and Shin (IPS)
3. ADF – Chi-Square
4. PP – Chi-Square
Step stasioneritas Panel

1. Select series (variabel)
2. Klik view lalu unit root
3. Pilih panel type adalah Summary
4. Pilih unit root test (level atau 1st Diff)
5. Pilih test equation (individual intercept
atau individual intercept and trend)
6. Tekan Ok.

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Stasioneritas

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Applied Econometrics

Consider the AR(1) model

Where et is a random noise process and the

A spurious regression usually has a very high R2,

Where eyt and ext are artificially generated normal

We need to examine whether is equal to 1.

The second contains a constant – no trend:

The third contains both a constant and a trend:

The PP test makes a correction to the t statistic

• Step stasioneritas Time-series

Step stasioneritas Panel

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