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Unusual Behaviour of Dickey-Fuller Tests in the Presence of Trend Misspecification: Comment

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  • Boriss Siliverstovs

Abstract

In this paper we present explanation on the phenomenon pointed out in Cook and Manning (2002) on the unusual behaviour of the Dickey-Fuller test in the presence of trend misspecification. It appears that the rejection frequency of the unit root tests in the presence of trend misspecification is very sensitive to the number of the initial observations that need to be discarded. Based on the evidence from the Monte Carlo simulations, we show that for the DGP in Cook and Manning (2002), the unusual behaviour of the Dickey-Fuller test disappears as the number of the discarded initial observations becomes sufficiently large.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41108.de/dp389.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 389.

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Length: 7 p.
Date of creation: 2003
Date of revision:
Handle: RePEc:diw:diwwpp:dp389

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Keywords: Dickey-Fuller test; unit root hypothesis testing;

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