A powerful test for unit root and an application to GNP of seven OECD countries

Abstract

This thesis uses a powerful test, Dickey-Fuller Generalized Least Squares (DF-GLS), to see whether unit root exists or not in real GNP of OECD Countries - Australia, Canada, Germany, Japan, Italy, U.K. and U.S. - for the years between the first quarter of 1960 and the second quarter of 1998 by using quarterly data that takes 1995 as base year. For this purpose a simple model with a deterministic component plus an error term, which is assumed to be AR (1), is used. The results of the regressions show the existence of unit root for all of the considered countries. Furthermore, we give flnite sample performances of Augmented Dickey-Fuller (ADF) test and DF-GLS tests which Elliott et al. (1996) conducted by using Monte Carlo experiment.