Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots

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Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots

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Title: Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots
Author: Perron, Pierre; Campbell, John

Note: Order does not necessarily reflect citation order of authors.

Citation: Campbell, John Y., and Pierre Perron. 1991. Pitfalls and opportunities: what macroeconomists should know about unit roots. NBER Macroeconomics Annual 6: 141-201.
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Abstract: This paper is an introduction to unit root econometrics as applied in macroeconomics. The paper first discusses univariate time series analysis, emphasizing the following topics: alternative representations of unit root processes, unit root testing procedures, the power of unit root tests, and the interpretation of unit root econometrics in finite samples. A second part of the paper tackles similar issues in a multivariate context where cointegration is now the central concept. The paper reviews representation, testing, and estimation of multivariate time series models with some unit roots. Two important themes of this paper are first, the importance of correctly specifying deterministic components of the series, and second, the usefulness of unit root tests not as methods to uncover some "true relation" but as practical devices that can be used to impose reasonable restrictions on the data and to suggest what asymptotic distribution theory gives the best approximation to the finite-sample distribution of coefficient estimates and test statistics.
Published Version: http://dx.doi.org/10.2307/3585053
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3374863
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