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The Methodology and Practice of EconometricsA Festschrift in Honour of David F. Hendry$
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Jennifer Castle and Neil Shephard

Print publication date: 2009

Print ISBN-13: 9780199237197

Published to Oxford Scholarship Online: September 2009

DOI: 10.1093/acprof:oso/9780199237197.001.0001

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When is a Time‐Series I(0)? *

When is a Time‐Series I(0)? *

(p.322) 13 When is a Time‐Series I(0)?*
The Methodology and Practice of Econometrics

James Davidson

Oxford University Press

This chapter surveys the extensive recent literature on the problems of deciding what is meant by an I(0) process, and then deciding how to test for the property. A formidable difficulty exists in the construction of consistent and asymptotically correctly sized tests for the I(0) hypothesis, and this may appear to place a question mark over the validity of a large area of econometric theory and practice. To overcome these difficulties in practical applications, the chapter proposes that a slightly different question needs to be posed, relating to the adequacy of approximation to asymptotic inference criteria in finite samples. A simulation-based test, aimed at discriminating between data sets on this basis, is examined in a Monte Carlo experiment.

Keywords:   integration, cointegration, short memory, long memory, testing I(0), fingerprinting I(0), bootstrap

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