Distribution Approximation of Unit Root Tests in Autoregressive Models

 by Rolf Larsson

 Research Report 1997:11

 Department of Statistics, Stockholm University, S-106 91 Stockholm, Sweden


The present work applies saddlepoint approximation to calculate the lefthand tail of the distribution of the unit root t test and an asymptotic equivalent test under the null hypothesis of a unit root. (This is the tail of interest when testing against a stationary alternative.) The saddlepoint equation is solved numerically. Distribution approximations are obtained both in the asyptotic and finite-sample cases. In the finite-sample case, two slightly different methods are suggested and compared.

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Last update: 1997-12-16 / KH