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Sequential Procedure for Testing Unit Roots in the Presence of Structural Break in Time Series Data

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Abstract

Testing for unit roots has special significance in terms of both economic theory and the interpretation of estimation results. As there are several methods available, researchers face method selection problem while conducting the unit root test on time series data in the presence of structural break. This paper proposes a sequential search procedure to determine the best test method for each time series. Different test methods or models may be appropriate for different time series. Therefore, instead of sticking to one particular test method for all the time series under consideration, selection of a set of mixed methods is recommended for obtaining better results.

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File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012189.pdf
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Bibliographic Info

Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp05-06.

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Length: 11 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:uow:depec1:wp05-06

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Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
Phone: +612 4221-3659
Fax: +612 4221-3725
Web page: http://business.uow.edu.au/econ/index.html
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Keywords: Time Series; Stationarity; Unit Root Test; Structural Break; Sequential Procedure;

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References

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  1. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  2. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
  3. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  4. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  5. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  6. Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
  7. 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.
  8. Panicos Demetriades & Kul B. Luintel, 1995. "The Direct Costs of Financial Repression: Evidence from India," Keele Department of Economics Discussion Papers (1995-2001) 95/12, Department of Economics, Keele University.
  9. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-20, July.
  10. Demetriades, Panicos O & Luintel, Kul B, 1996. "Banking Sector Policies and Financial Development in Nepal," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 355-72, May.
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Cited by:
  1. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2013. "Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence," Working papers 2013-19, University of Connecticut, Department of Economics.
  2. Choon-Seng Lim & Vincent & Min B. Shrestha, 2009. "Capital Flows and Implication for Central Bank Policies in The SEACEN Countries," Research Studies, South East Asian Central Banks (SEACEN) Research and Training Centre, number rp76, June.
  3. Naufal, George S & Genc, Ismail H., 2013. "Structural Change in MENA Remittance Flows," IZA Discussion Papers 7485, Institute for the Study of Labor (IZA).
  4. Prasert Chaitip & Chukiat Chaiboonsri, 2009. "Thailand’s International Tourism Demand: The ARDL Approach to Cointegration," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 9(3), pages 163-184.
  5. Khorshed Chowdhury, 2011. "Dynamics, Structural Breaks and the Determinants of the Real Exchange Rate of Australia," Economics Working Papers wp11-11, School of Economics, University of Wollongong, NSW, Australia.
  6. Shankar Prasad Acharya, 2009. "Verification of Causality through VAR and Intervention Analysis: Econometric Modeling on Budget Deficit and Trade Deficit in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 21, pages 1, April.

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