This paper is an introduction to unit root econometrics as applied in macroeconomics.
The paper first discusses univariate time series analysis, emphasizing the following
topic: alternative representations of unit root processes, unit root testing procedures,
the power unit root tests, and the interpretation of unit root econometrics in finite
samples. A second part of the paper tackles similar issues in a multivariate context
where cointegration is now the central concept. The paper reviews representation,
testing, and estimation of multivariate time series models with some unit roots.
Two important themes of this paper are first, the importance of correctly specifying
deterministic components of the series; and second, the usefulness of unit root tests
not as method to uncover some "true relation" but as practical devices that can be
used to impose reasonable restrictions on the data and to suggest what asymptotic
distribution theory gives the best approximation to the finite-sample distribution
of coefficient estimates and test statistics.