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Behaviour of Dickey-Fuller tests when there is a break under the unit root null hypothesis

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  • Sen, Amit
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    Abstract

    We show that Dickey and Fuller's [1979. Distribution of the estimator for autoregressive time series with a unit root. J. Amer. Statist. Assoc. 74, 427-431; 1981. Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica 49, 1057-1072.] normalized estimator, and F-statistics will spuriously reject the unit root null when the true data generating process is a unit root with a break.

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    Bibliographic Info

    Article provided by Elsevier in its journal Statistics & Probability Letters.

    Volume (Year): 78 (2008)
    Issue (Month): 6 (April)
    Pages: 622-628

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    Handle: RePEc:eee:stapro:v:78:y:2008:i:6:p:622-628

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    Related research

    Keywords: Unit root Break Normalized estimator Dickey-Fuller F-statistics;

    References

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    1. Leybourne, Stephen J. & C. Mills, Terence & Newbold, Paul, 1998. "Spurious rejections by Dickey-Fuller tests in the presence of a break under the null," Journal of Econometrics, Elsevier, vol. 87(1), pages 191-203, August.
    2. Leybourne, Stephen J. & Newbold, Paul, 2000. "BEHAVIOR OF DICKEY FULLER t-TESTS WHEN THERE IS A BREAK UNDER THE ALTERNATIVE HYPOTHESIS," Econometric Theory, Cambridge University Press, vol. 16(05), pages 779-789, October.
    3. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    4. Monta s, Antonio & Reyes, Marcelo, 1998. "Effect Of A Shift In The Trend Function On Dickey Fuller Unit Root Tests," Econometric Theory, Cambridge University Press, vol. 14(03), pages 355-363, June.
    5. Montañés, Antonio & Reyes, Marcelo, 1999. "The asymptotic behaviour of the Dickey-Fuller tests under the crash hypothesis," Statistics & Probability Letters, Elsevier, vol. 42(1), pages 81-89, March.
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    7. Stephen J. Leybourne And Paul Newbold, 2000. "Behaviour of the standard and symmetric Dickey-Fuller-type tests when there is a break under the null hypothesis," Econometrics Journal, Royal Economic Society, vol. 3(1), pages 1-15.
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    Cited by:
    1. Olivier Darne & Amélie Charles, 2011. "Large shocks in U.S. macroeconomic time series: 1860-1988," Post-Print hal-00771828, HAL.
    2. Charles, Amélie & Darné, Olivier, 2012. "Trends and random walks in macroeconomic time series: A reappraisal," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 167-180.

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