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Perform Elliott-Jansson test for unit roots with stationary covariates

Syntax

urcovar depvar varlist [if exp] [in range] [, maxlag(#) case(#) firstobs ]

urcovar is for use with time-series data. You must tsset your data before using urcovar; see tsset. You may apply urcovar to a single time series of a panel dataset. varlist may contain time-series operators; see help varlist.

Description

urcovar performs the test for a unit root in depvar in the context of one or more stationary covariates (listed in varlist) 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 of depvar. 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 the case option.

Options

varlist specifies 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 of depvar and varlist. Case 2 allows a constant in the representation of depvar. Case 3 allows for constants in both depvar and varlist. Case 4 also allows for a trend in the representation of depvar. Case 5 imposes no restrictions, allowing for constants and trends in both depvar and varlist. If not specified, case 1 is tested.

firstobs specifies that the first observation of depvar should be used to define the first quasi-difference. If the option is not specified, that quasi-difference is set to zero.

Saved results

urcovar returns the names of depvar and varlist and the value of case and maxlag in the return list. As well, the test statistic lambda, interpolated 5% critical value (crit5) and estimated R-squared (r2) are returned. See return list.

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)

Acknowledgements

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

References

Elliott, 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

urcovar is 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

Author

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

Also see

On-line: help for dfgls