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Break Point Estimation and Spurious Rejections with Endogenous Unit Root Tests

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Author Info
 Lee, Junsoo
Strazicich, Mark C

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Abstract

This paper examines the accuracy of break point estimation using the endogenous break unit root tests of Zivot and Andrews (1992) and Perron (1997). We find that these tests tend to identify the break point incorrectly at one-period behind (T[subscript B] - 1) the true break point (T[subscript B]), where bias in estimating the persistence parameter and spurious rejections are the greatest. In addition, this outcome occurs under the null and alternative hypotheses, and more so as the magnitude of the break increases. Consequences of utilizing these endogenous break tests are similar to (incorrectly) omitting the break term B[subscript t] in Perron's (1989) exogenous test. Copyright 2001 by Blackwell Publishing Ltd

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 63 (2001)
Issue (Month): 5 (December)
Pages: 535-58
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Handle: RePEc:bla:obuest:v:63:y:2001:i:5:p:535-58

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  1. Junsoo Lee & John A. List & Mark Strazicich, 2005. "Nonrenewable Resource Prices: Deterministic or Stochastic Trends?," NBER Working Papers 11487, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University. [Downloadable!]
  3. Gomes, F. A. R. & Silva, C. G., 2007. "Hysteresis vs. NAIRU and Convergence vs. Divergence: The behavior of regional unemployment rates in Brazil," Ibmec Working Papers wpe_71, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  4. Stephan Popp, 2008. "A Nonlinear Unit Root Test in the Presence of an Unknown Break," Ruhr Economic Papers 0045, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  5. 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!]
  6. Westerlund, Joakim & Edgerton , David, 2006. "New Improved Tests for Cointegration with Structural Breaks," Working Papers 2006:3, Lund University, Department of Economics.
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  7. Milton Barossi-Filho & Ricardo Gonçalves Silva & Eliezer Martins Diniz, 2005. "The empirics of the Solow growth model: Long-term evidence," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 31-51, May. [Downloadable!]
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  10. Michael G. Arghyrou & Andros Gregoriou & Alexandros Kontonikas, 2007. "Do real interest rates converge? Evidence from the European Union," Working Papers 2007_21, Department of Economics, University of Glasgow. [Downloadable!]
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  11. Fábio Augusto Reis Gomes & Cleomar Gomes da Silva, 2006. "Hysteresis Vs. Nairu And Convergence Vs. Divergence: The Behavior Of Regional Unemployment Rates In Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 161, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  12. Luis C. Nunes, 2004. "LM-Type tests for a Unit Root Allowing for a Break in Trend," Econometric Society 2004 Australasian Meetings 190, Econometric Society. [Downloadable!]
  13. Aitor Ciarreta Antuñano & Ainhoa Zarraga Alonso, 2007. "Electricity consumption and economic growth: evidence from Spain," BILTOKI 200701, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística). [Downloadable!]
  14. John W. Dawson & Mark C. Strazicich, 2006. "Time Series Tests of Income Convergence with Two Structural Breaks: An Update and Extension," Working Papers 06-01, Department of Economics, Appalachian State University. [Downloadable!]
  15. Juncal Cuñado & Fernando Perez de Gracia, 2006. "Real convergence in some Central and Eastern European countries," Applied Economics, Taylor and Francis Journals, vol. 38(20), pages 2433-2441, November. [Downloadable!] (restricted)
  16. ALTINAY, Galip, 2005. "Structural Breaks in Long-Term Turkish Macroeconomic Data,1923-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(4). [Downloadable!] (restricted)
  17. Marcos José Dal Bianco, 2008. "Argentinean real exchange rate 1900-2006, test purchasing power parity theory," Estudios de Economia, University of Chile, Department of Economics, vol. 35(1 Year 20), pages 33-64, June. [Downloadable!]
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