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Definition of Dickey-Fuller Test

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Definition: A Dickey-Fuller test is an econometric test for whether a certain kind of time series data has an autoregressive unit root.

In particular in the time series econometric model y[t] = by[t-1] + e[t], where t is an integer greater than zero indexing time, and b=1, let bOLS denote the OLS estimate of b from a particular sample. Let T be the sample size.

Then the test statistic T*(bOLS -1) has a known, documented distribution. Its value in a particular sample can be compared to that distribution to determine a probability that the original sample came from a unit root autoregressive process; that is, one in which b=1.

(Econterms)

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