Testing for Unit roots Consider an AR(1): y=a+p +e,t Let Ho: p=1, (assume there is a unit root) Define 0=p-1 and subtract y, from both sides to obtain Ay,=a+ B+e, Unfortunately, a simple t-test is inappropriate, since this is an I(1) process ADickey-Fuller Test uses the t-statistic, but different critical values Economics 20- Prof anderson
3.1 A brief history of western E.P. The foundation of E.P.: before 1920s Wundt,1879: methodology James, “Talks to the teachers” 1899; “The principles of psychology”1890; Dewey: apply psychology to education