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Perform Elliott-Jansson test for unit roots with stationary covariates

Syntax

urcovardepvarvarlist[ifexp] [inrange] [,maxlag(#)case(#)firstobs]

urcovaris for use with time-series data. You musttssetyour data before usingurcovar; see tsset. You may applyurcovarto a single time series of a panel dataset.varlistmay contain time-series operators; seehelp varlist.

Description

urcovarperforms the test for a unit root indepvarin the context of one or more stationary covariates (listed invarlist) which was proposed by Elliott and Jansson (2003) as a generalization of the CADF test of Hansen (1995). The Elliott-Jansson test constructs a VAR in the model of the stationary covariates and the quasi-difference ofdepvar. As in the Dickey-Fuller (dfuller) or Elliott-Rothenberg-Stock DF-GLS (dfgls) unit root tests, the model can include no deterministic terms, constants or constants and time trends. The deterministic model is specified by thecaseoption.

Options

varlistspecifies the set of stationary regressors. At least one must be provided.

maxlag(#)specifies the number of lags to be used in computing the VAR. If not provided, one lag is assumed.

case(#)specifies the deterministic features of the model. Case 1 specifies no constant nor trend in the representation ofdepvarandvarlist. Case 2 allows a constant in the representation ofdepvar. Case 3 allows for constants in bothdepvarandvarlist. Case 4 also allows for a trend in the representation ofdepvar. Case 5 imposes no restrictions, allowing for constants and trends in bothdepvarandvarlist. If not specified, case 1 is tested.

firstobsspecifies that the first observation ofdepvarshould be used to define the first quasi-difference. If the option is not specified, that quasi-difference is set to zero.

Saved results

urcovarreturns the names ofdepvarandvarlistand the value ofcaseandmaxlagin the return list. As well, the test statisticlambda, interpolated 5% critical value (crit5) and estimated R-squared (r2) are returned. Seereturnlist.

Examples. use http://fmwww.bc.edu/ec-p/data/macro/blanquah

. urcovar PINCOME UNRATE, case(3) maxlag(8)

. urcovar PINCOME UNRATE, case(5) maxlag(8)

AcknowledgementsI am grateful to Graham Elliott for clarifications of the logic of this routine > . Remaining errors are my own.

ReferencesElliott, G. and Jansson, M., 2003. Tests for Unit Roots with Stationary Covariates. Journal of Econometrics, Vol. 115, pp. 75-89.

Elliott, G. and Pesavento, E., 2006. On the Failure of Purchasing Power Parity for Bilateral Exchange Rates after 1973. Journal of Money, Credit and Banking, Vol. 38, pp. 1405-1430.

Hansen, B.E., 1995. Rethinking the univariate approach to unit root testing: using covariates to increase power. Econometric Theory, Vol. 11, 1148-1172.

Citation

urcovaris not an official Stata command. It is a free contribution to the research community, like a paper. Please cite it as such:Baum, C.F., 2007. urcovar: Stata module to perform Elliott-Jansson test for unit roots with stationary covariates. http://ideas.repec.org/c/boc/bocode/s456863.html

AuthorChristopher F Baum, Boston College, USA baum@bc.edu

Also seeOn-line: help for dfgls