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Math Help - Non-stationary time series

  1. #1
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    Non-stationary time series

    Dear all,

    I have a series which is clearly trending. It looks to be stationary around a linear deterministic trend and shocks does seem only to affect the series temporarily.

    So my guess is that this is a trend stationary series - i.e stationary about a deterministic trend. However, it could have a stochastic trend (unit root) as well.


    I am asked to test the hypothesis of the series beeing non-stationary against the alternative hypothesis:
    1) the series being stationary
    2) the series being stationary around a trend

    I am also asked to coment on the results.


    My question is how to formally test for this.
    Could I run an ADF test on the series specified first including a trend term and then without a trend term and conclude from that?

    And how do you normally decide how to set up the ADF regression? I mean no. of lags, deterministic terms and so on.


    Thank you very much for your help on this matter. I feel stuck reading for an exam.

    Chris
    Last edited by ChrisZ; May 25th 2009 at 09:35 AM.
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