[Gretl-users] Re: None-uniform distribution of the p-value from ADF test in gretl when there is an intercept or trend? (Sven Schreiber)

On Fri, 26 Apr 2019, Sven Schreiber wrote: >>> cheers >>> sven >>> >> >> Thanks Sven, >> But I’m more confused. >> If you are right, then what does the option "--ct (with constant and >> trend)” as stated in gretl's documentation mean for ADF test? >> If I set both the intercept and trend parameters to 0.1, doesn’t the >> option “--ct” in DGP become >>   y(t)=0.1 + 0.1*t + y(t-1)+ e ? > > In the unit root case the DGP and the test equation are not the same as > regards the included terms. That's because of the implicit cumulation of > exogenous terms in the DGP. The ADF test options refer to the test > equation, not to the DGP equation (under H0). > > This is a general property and not specific to gretl. And the practical implication is that for Fred's DGP, y(t)=0.1 + 0.1*t + y(t-1)+ e where the 0.1*t cumulates, the adf-test option that should yield a uniformly distributed p-value is --ctt (constant and quadratic trend).