On Unit-Root Tests When the Alternative Is a Trend-Break Stationary Process

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On Unit-Root Tests When the Alternative Is a Trend-Break Stationary Process

Author Info

Sen, Amit

Abstract

Minimum t statistics to test for a unit-root are available when the form of break under the alternative evolves according to the crash, changing growth, and mixed models. It is shown that serious power distortions occur if the form of break is misspecified, and thus the practitioner should use the mixed model as the appropriate alternative in empirical applications. The mixed model may reveal useful information regarding the location and form of break. The maximum F statistic for the joint null of a unit-root and no breaks is shown to have greater and less erratic power compared to the minimum t statistic. Stronger evidence against the unit-root is found for the Nelson-Plosser series and U.S. Postwar quarterly real gross national product.

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Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 21 (2003)
Issue (Month): 1 (January)
Pages: 174-84
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Handle: RePEc:bes:jnlbes:v:21:y:2003:i:1:p:174-84

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John Dawson & Steven Millsaps & Mark Strazicich, 2004. "Trend Breaks and Seasonality in the Yugoslav Black Market for Dollars, 1974-1987," Working Papers 04-04, Department of Economics, Appalachian State University, revised 2005. [Downloadable!]
Waheed, Muhammad & Alam, Tasneem & Ghauri, Saghir Pervaiz, 2006. "Structural breaks and unit root: evidence from Pakistani macroeconomic time series," MPRA Paper 1797, University Library of Munich, Germany. [Downloadable!]
John W. Dawson, 2005. "Regulation and the Macroeconomy," Working Papers 05-16, Department of Economics, Appalachian State University. [Downloadable!]
Other versions:
- John W. Dawson & John Seater, 2002. "Regulation and the Macroeconomy," Working Papers 02-07, Department of Economics, Appalachian State University.
- John W. Dawson, 2007. "Regulation and the Macroeconomy," Kyklos, Blackwell Publishing, vol. 60(1), pages 15-36, 02. [Downloadable!] (restricted)
Gary L. Shelley & Frederick H. Wallace, 2004. "Testing for Long Run Neutrality of Money in Mexico," Macroeconomics 0402003, EconWPA. [Downloadable!]
Chien-Chiang Lee & Chun-Ping Chang, 2007. "Mean reversion of inflation rates in 19 OECD countries: Evidence from panel Lm unit root tests with structural breaks," Economics Bulletin, Economics Bulletin, vol. 3(23), pages 1-15. [Downloadable!]
Paresh Kumar Narayan, 2005. "New evidence on purchasing power parity from 17 OECD countries," Applied Economics, Taylor and Francis Journals, vol. 37(9), pages 1063-1071, May. [Downloadable!] (restricted)
John W. Dawson & Amit Sen, 2005. "New Evidence on the Convergence of International Income from a Group of 29 Countries," Working Papers 05-22, Department of Economics, Appalachian State University. [Downloadable!]
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- John Dawson & Amit Sen, 2007. "New evidence on the convergence of international income from a group of 29 countries," Empirical Economics, Springer, vol. 33(2), pages 199-230, September. [Downloadable!] (restricted)

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