Journal or Book Title
Oxford Bulletin of Economics and Statistics
Unit-root testing can be a preliminary step in model development, an intermediate step, or an end in itself. Some researchers have questioned the value of any unit-root and cointegration testing, arguing that restrictions based on theory are at least as effective. Such confusion is unsatisfactory. Needed is a set of principles that limit and deﬁne the role of the tacit knowledge of the model builders. In a forecasting context, we enumerate the various possible model selection strategies and, based on simulation and empirical evidence, recommend using these tests to improve the speciﬁcation of an initial general vector autoregression model.
Allen, PG and Fildes, R, "Levels, differences and ECMs - Principles for improved econometric forecasting" (2005). Oxford Bulletin of Economics and Statistics. 7.