Finite Sample Lag Adjusted Critical Values of the ADF-GLS Test

Abstract

Ng and Perron (Econometrica 69:1519–1554, 2001) demonstrated the merits to employing their Modified Akaike Information Criterion to select the optimal lag length in the Elliott, Rothenberg and Stock (Econometrica 64:813–836, 1996) unit rot test. Perron and Qu (Econ Lett 84:12–19, 2007) introduced an empirical method that resolved an associated power problem for non-local alternatives. While Cheung and Lai (Oxford Bull Econ Stat 57:411-419, 1995) contains response surface estimates to generate finite-sample, lag-adjusted critical five and ten percent values for use in applied work, these relate to the original Elliott et al. (Econometrica 64:813–836, 1996) test. This paper provides response surfaces estimates of critical values for both the Ng and Perron (Econometrica 69:1519–1554, 2001) and Perron and Qu (Econ Lett 84:12–19, 2007) approaches, demonstrating they are sometimes quite different, an important consideration when performing inference.