NAG Library Routine Document

G13AWF

If the root of the characteristic equation for a time series is one then that series is said to have a unit root. Such series are nonstationary. G13AWF returns one of three types of (augmented) Dickey–Fuller test statistic:

τ

τ_{μ}

τ_{τ}

, used to test for a unit root, a unit root with drift or a unit root with drift and a deterministic time trend, respectively.

To test whether a time series,

y_{t}

, for

t = 1, 2, \dots, n

, has a unit root the regression model

\nabla y_{t} = β_{1} y_{t - 1} + \sum_{i = 1}^{p - 1} δ_{i} \nabla y_{t - i} + ε_{t}

is fit and the test statistic

τ

constructed as

τ = \frac{{\hat{β}}_{1}}{σ_{11}}

where

\nabla

is the difference operator, with

\nabla y_{t} = y_{t} - y_{t - 1}

, and where

{\hat{β}}_{1}

and

σ_{11}

are the least squares estimate and associated standard error for

β_{1}

respectively.

To test for a unit root with drift the regression model

\nabla y_{t} = β_{1} y_{t - 1} + \sum_{i = 1}^{p - 1} δ_{i} \nabla y_{t - i} + α + ε_{t}

is fit and the test statistic

τ_{μ}

constructed as

τ_{μ} = \frac{{\hat{β}}_{1}}{σ_{11}}

To test for a unit root with drift and deterministic time trend the regression model

\nabla y_{t} = β_{1} y_{t - 1} + \sum_{i = 1}^{p - 1} δ_{i} \nabla y_{t - i} + α + β_{2} t + ε_{t}

is fit and the test statistic

τ_{τ}

constructed as

τ_{τ} = \frac{{\hat{β}}_{1}}{σ_{11}}

The distributions of the three test statistics;

τ

τ_{μ}

and

τ_{τ}

, are nonstandard. An associated probability can be obtained from G01EWF.

4 References

Dickey A D (1976) Estimation and hypothesis testing in nonstationary time series PhD Thesis Iowa State University, Ames, Iowa

Dickey A D and Fuller W A (1979) Distribution of the estimators for autoregressive time series with a unit root J. Am. Stat. Assoc. 74 366 427–431

5 Parameters

1: $TYPE$ – INTEGERInput

On entry: the type of unit test for which the probability is required.

$TYPE = 1$: A unit root test will be performed and $τ$ returned.
$TYPE = 2$: A unit root test with drift will be performed and $τ_{μ}$ returned.
$TYPE = 3$: A unit root test with drift and deterministic time trend will be performed and $τ_{τ}$ returned.

Constraint:

TYPE = 1

2

3

2: $P$ – INTEGERInput

On entry:

p

, the degree of the autoregressive (AR) component of the Dickey–Fuller test statistic. When

p > 1

the test is usually referred to as the augmented Dickey–Fuller test.

Constraint:

P > 0

3: $N$ – INTEGERInput

On entry:

n

, the length of the time series.

Constraints:

if $TYPE = 1$ , $N > 2 P$ ;
if $TYPE = 2$ , $N > 2 P + 1$ ;
if $TYPE = 3$ , $N > 2 P + 2$ .

4: $Y (N)$ – REAL (KIND=nag_wp) arrayInput

On entry:

y

, the time series.

5: $IFAIL$ – INTEGERInput/Output

On entry: IFAIL must be set to

0

- 1 ​ or ​ 1

. If you are unfamiliar with this parameter you should refer to Section 3.3 in the Essential Introduction for details.

For environments where it might be inappropriate to halt program execution when an error is detected, the value

- 1 ​ or ​ 1

is recommended. If the output of error messages is undesirable, then the value

1

is recommended. Otherwise, if you are not familiar with this parameter, the recommended value is

0

. When the value $- 1 or 1$ is used it is essential to test the value of IFAIL on exit.

On exit:

IFAIL = 0

unless the routine detects an error or a warning has been flagged (see Section 6).

6 Error Indicators and Warnings

If on entry

IFAIL = 0

- 1

, explanatory error messages are output on the current error message unit (as defined by X04AAF).

Errors or warnings detected by the routine:

$IFAIL = 11$: On entry, $TYPE = 〈value〉$ .
Constraint: $TYPE = 1$ , $2$ or $3$ .

$IFAIL = 21$: On entry, $P = 〈value〉$ .
Constraint: $P > 0$ .

$IFAIL = 31$: On entry, $N = 〈value〉$ .
Constraint: $N > 〈value〉$ .

$IFAIL = 41$: On entry, the design matrix used in the estimation of $β_{1}$ is not of full rank, this is usually due to all elements of the series being virtually identical. The returned statistic is therefore not unique and likely to be meaningless.

$IFAIL = 42$: $σ_{11} = 0$ , therefore depending on the sign of ${\hat{β}}_{1}$ , a large positive or negative value has been returned.

$IFAIL = - 99$: An unexpected error has been triggered by this routine. Please contact NAG.
See Section 3.8 in the Essential Introduction for further information.

$IFAIL = - 399$: Your licence key may have expired or may not have been installed correctly.
See Section 3.7 in the Essential Introduction for further information.

$IFAIL = - 999$: Dynamic memory allocation failed.
See Section 3.6 in the Essential Introduction for further information.

7 Accuracy

None.

8 Parallelism and Performance

Not applicable.

9 Further Comments

None.

10 Example

In this example a Dickey–Fuller unit root test is applied to a time series related to the rate of the earth's rotation about its polar axis.

NAG Library Routine DocumentG13AWF

▸▿ Contents

1 Purpose

2 Specification

3 Description

4 References

5 Parameters

6 Error Indicators and Warnings

7 Accuracy

8 Parallelism and Performance

9 Further Comments

10 Example

10.1 Program Text

10.2 Program Data

10.3 Program Results

NAG Library Routine Document

G13AWF