The exact power envelope of tests for a unit root

Abstract

We show how to obtain the exact power envelope of tests for a unit root against trend-stationary alternatives, under normality. This is in contrast to the asymptotic power envelope derived by Elliott, Rothenberg and Stock (1996), and is used to indicate the lack of power of unit root tests in fixed sample sizes. <br><br> Keywords; power envelope, unit root tests <br><br> JEL classification: C12, C22