The PP test is an extension of the Augmented Dickey-Fuller (ADF) test, but it makes fewer assumptions about the underlying data. It adjusts for serial correlation and heteroscedasticity (variance changes over time) without adding lagged difference terms. The test involves: 1. Estimating the regression: \( \Delta y_t = \alpha + \beta t + \gamma y_{t-1} + \epsilon_t \) 2. Adjusting the test statistics to account for serial correlation and heteroscedasticity.
