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Effect Of A Shift In The Trend Function On Dickey Fuller Unit Root Tests

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Author Info
Monta s, Antonio
Reyes, Marcelo

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Abstract

This article analyzes the asymptotic behavior of the Dickey Fuller unit root tests when the variable is generated under the breaking trend hypothesis. Our results show that the asymptotic behavior of these statistics allows for the rejection of the unit root hypothesis. This asymptotic finding contrasts with the results that can be found in the literature devoted to the analysis of the integration order of a variable in the presence of a structural break. However, some Monte Carlo exercises show that the argument of Perron (1989, Econometrica 57, 1361 1401) that the tests are biased in favor of nonrejection of the unit root hypothesis remains valid for sample sizes of practical interest.

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Publisher Info
Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 14 (1998)
Issue (Month): 03 (June)
Pages: 355-363
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Handle: RePEc:cup:etheor:v:14:y:1998:i:03:p:355-363_14

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  1. M. Lanne & H. Lütkepohl & P. Saikkonen, . "Comparison of Unit Root Tests for Time Series with Level Shifts," Sonderforschungsbereich 373 1999-88, Humboldt Universitaet Berlin.
  2. Antonio Montanes & Andreu Sanso, 2001. "The Dickey-Fuller Test Family and Changes in the Seasonal Pattern," Annales d'Economie et de Statistique, ADRES, issue 61, pages 06, Janvier-M. [Downloadable!]
  3. Josep Carrion-i-Silvestre & Vicente German-Soto, 2009. "Panel data stochastic convergence analysis of the Mexican regions," Empirical Economics, Springer, vol. 37(2), pages 303-327, October. [Downloadable!] (restricted)
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  4. H. Lütkepohl & C. Müller & P. Saikkonen, . "Unit Root Tests for Time Series with a Structural Break When the Break Point is Known," Sonderforschungsbereich 373 1999-33, Humboldt Universitaet Berlin.
  5. Amit Sen, 2007. "On the Distribution of the Break-Date Estimator Implied by the Perron-Type Statistics When the Form of Break is Misspecified," Economics Bulletin, Economics Bulletin, vol. 3(6), pages 1-19. [Downloadable!]
  6. Uwe Hassler, 2003. "Nonsense regressions due to neglected time-varying means," Statistical Papers, Springer, vol. 44(2), pages 169-182, April. [Downloadable!] (restricted)
  7. Mariam Camarero & Josep Lluis Carrion Silvestre & Cecilio Tamarit, 2006. "New evidence of the real interest rate parity for OECD countries using panel unit root tests with breaks," Working Papers in Economics 159, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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  8. Olivier Darné & Amélie Charles, 2009. "Large shocks in U.S. macroeconomic time series: 1860–1988," Working Papers hal-00422502_v1, HAL. [Downloadable!]
  9. Josep Carrion-i-Silvestre & Andreu Sansó, 2007. "The KPSS test with two structural breaks," Spanish Economic Review, Springer, vol. 9(2), pages 105-127, June. [Downloadable!] (restricted)
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