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Behaviour of Dickey-Fuller Unit-Root Tests Under Trend Misspecification

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Author Info
Tae-Hwan Kim
Stephen Leybourne
Paul Newbold

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Abstract

We analyse the case where a unit-root test is based on a Dickey-Fuller regression the only deterministic term of which is a fixed intercept. Suppose, however, as could well be the case, that the actual data-generating process includes a broken linear trend. It is shown theoretically, and verified empirically, that under the I(1) null and I(0) alternative hypotheses the Dickey-Fuller test can display a wide range of different characteristics depending on the nature and location of the break. Copyright 2004 Blackwell Publishing Ltd.

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Article provided by Blackwell Publishing in its journal Journal of Time Series Analysis.

Volume (Year): 25 (2004)
Issue (Month): 5 (09)
Pages: 755-764
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Handle: RePEc:bla:jtsera:v:25:y:2004:i:5:p:755-764

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Vogelsang, Timothy J & Perron, Pierre, 1998. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1073-1100, November.
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  2. West, Kenneth D., 1987. "A note on the power of least squares tests for a unit root," Economics Letters, Elsevier, vol. 24(3), pages 249-252. [Downloadable!] (restricted)
  3. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
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  4. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
  5. Ayat, Leila & Burridge, Peter, 2000. "Unit root tests in the presence of uncertainty about the non-stochastic trend," Journal of Econometrics, Elsevier, vol. 95(1), pages 71-96, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Manuel Gomez & Daniel Ventosa-Santaularia, . "Inflation and breaks: the validity of the Dickey-Fuller test," School of Economics Working Papers EM200601, Universidad de Guanajuato. [Downloadable!]
  2. Jürgen Wolters & Uwe Hassler, 2006. "Unit root testing," AStA Advances in Statistical Analysis, Springer, vol. 90(1), pages 43-58, March. [Downloadable!] (restricted)
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