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Augmented Dickey-Fuller (ADF) test Implementation

dtammerz

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Hello,
With regards to GARP text, Book 2, Ch.11 (Non-Stationary Time Series) page.196: I'm trying to understand how to implement the ADF test. In determining the number of lags, what is meant by "it should be large enough to absorb any short run dynamics in the difference ∆Yt"?

"Implementing an ADF test on a time series requires making two choices: which deterministic terms to include and the number of lags of the difference data to use. The number of lags to include is simple to determine - it should be large enough to absorb any short-run dynamics in the difference ∆Yt."
 

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