Boundary and Sign Problems of Parameters along with its Solutions of the Augmented Dickey-Fuller Test

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Gowranga Kumar Paul
Gowranga Kumar Paul
2
Shayla Naznin
Shayla Naznin
3
Ajit kumar Majumder
Ajit kumar Majumder

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GJSFR Volume 14 Issue F5

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Usual test of testing unit root such as Dickey-Fuller (DF), Augmented Dickey-Fuller (ADF), Phillips Perron etc ignores sign and boundary of parameters. In this paper, we demonstrated the ignorance of sign and boundary of parameters and consequences of this ignorance in estimation and testing by Monte Carlo Simulation. Our main objective is to develop a method to capture the non-stationarity keeping in mind the boundary and sign problem and to develop the restricted ADF test based on ESS using the constraint estimate of parameters. We compare the power properties of the usual ADF test and ADF test with restricted error sum of squares using the constraint estimate of parameters by Monte Carlo Simulation and we find that the proposed ADF test gives better result than the usual ADF test in terms of power properties.

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No external funding was declared for this work.

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The authors declare no conflict of interest.

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No ethics committee approval was required for this article type.

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Not applicable for this article.

Gowranga Kumar Paul. 2014. \u201cBoundary and Sign Problems of Parameters along with its Solutions of the Augmented Dickey-Fuller Test\u201d. Global Journal of Science Frontier Research - F: Mathematics & Decision GJSFR-F Volume 14 (GJSFR Volume 14 Issue F5): .

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GJSFR Volume 14 Issue F5
Pg. 55- 59
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Crossref Journal DOI 10.17406/GJSFR

Print ISSN 0975-5896

e-ISSN 2249-4626

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v1.2

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October 7, 2014

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English

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Usual test of testing unit root such as Dickey-Fuller (DF), Augmented Dickey-Fuller (ADF), Phillips Perron etc ignores sign and boundary of parameters. In this paper, we demonstrated the ignorance of sign and boundary of parameters and consequences of this ignorance in estimation and testing by Monte Carlo Simulation. Our main objective is to develop a method to capture the non-stationarity keeping in mind the boundary and sign problem and to develop the restricted ADF test based on ESS using the constraint estimate of parameters. We compare the power properties of the usual ADF test and ADF test with restricted error sum of squares using the constraint estimate of parameters by Monte Carlo Simulation and we find that the proposed ADF test gives better result than the usual ADF test in terms of power properties.

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Boundary and Sign Problems of Parameters along with its Solutions of the Augmented Dickey-Fuller Test

Shayla Naznin
Shayla Naznin
Gowranga Kumar Paul
Gowranga Kumar Paul
Ajit kumar Majumder
Ajit kumar Majumder

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