[Gretl-devel] ADF test variations

As most readers will know, gretl offers a --test-down option for the ADF test. To date (until recent CVS), the only form of "testing down" that we offered was that proposed by Ng and Perron in the mid-1990s. Namely, we start at the maximum lag order, and delete the last lag (of the difference of the variable to be tested) so long as it is not "significant" at the 10 percent level on a two-tailed test. The problem with this procedure is that (as later work by Ng and Perron showed), it tends to over-parameterize the ADF regression, hence reducing its power. A 2001 Econometrica article by these authors suggested using a modified version of the AIC criterion to optimize the lag order. That's now implemented in gretl, via --test-down=MAIC (and for good measure, we also offer the correspondingly modified Schwarz Bayesian criterion, via --test-down=MBIC). I think it would be a good idea to make the MAIC criterion the default for "test-down". This would be backward incompatible, in the sense that the same script, using the --test-down option with the "adf" command, and with no additional parameter, would (in general) produce different results under gretl >= 1.9.13 versus gretl <= 1.9.12. But you could still get the old behaviour under new gretl using --test-down=tstat. So my question to you: Does this sound OK? Any objections? Allin