Unit Root Tests and Structural Change when the Initial Observation is Drawn from its unconditional Distribution
AbstractFollowing Elliott (1999) and Perron and Rodríguez (2003), we develop unit root tests in the context of structural change models using GLS detrended data (Elliott, Rothenberg and Stock, 1996) when the initial observation is drawn from its unconditional distribution. We derive the limiting distributions of the M-tests (Stock, 1999; Perron, and Ng, 1996), the ADF statistic and a feasible optimal point test from which we derive the power envelope. Asymptotic power functions are calculated and compared with the case where the initial condition is not random. Finite sample size and power simulations under various forms of error processes are performed using different lag selection methods and two different methods to select the break point. Empirical applications are also provided.
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Bibliographic InfoPaper provided by University of Ottawa, Department of Economics in its series Working Papers with number 0602E.
Length: 23 pages
Date of creation: 2006
Date of revision:
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Initial Condition; Feasible Optimal Point Test; GLS Detrending; Power Envelope; Unit Root; Structural Change;
Other versions of this item:
- Hui Liu & Gabriel Rodr�guez, 2006. "Unit root tests and structural change when the initial observation is drawn from its unconditional distribution," Econometrics Journal, Royal Economic Society, vol. 9(2), pages 225-251, 07.
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
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