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What is What?: A Simple Time-Domain Test of Long-memory vs. Structural Breaks

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Author Info
Juan J. Dolado
Jesús Gonzalo
Laura Mayoral ()

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Abstract

This paper proposes a new time-domain test of a process being I(d), 0 < d = 1, under the null, against the alternative of being I(0) with deterministic components subject to structural breaks at known or unknown dates, with the goal of disentangling the existing identification issue between long-memory and structural breaks. Denoting by AB(t) the different types of structural breaks in the deterministic components of a time series considered by Perron (1989), the test statistic proposed here is based on the t-ratio (or the infimum of a sequence of t-ratios) of the estimated coefficient on yt-1 in an OLS regression of ?dyt on a simple transformation of the above-mentioned deterministic components and yt-1, possibly augmented by a suitable number of lags of ?dyt to account for serial correlation in the error terms. The case where d = 1 coincides with the Perron (1989) or the Zivot and Andrews (1992) approaches if the break date is known or unknown, respectively. The statistic is labelled as the SB-FDF (Structural Break-Fractional Dickey- Fuller) test, since it is based on the same principles as the well-known Dickey-Fuller unit root test. Both its asymptotic behavior and finite sample properties are analyzed, and two empirical applications are provided.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 954.

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Date of creation: Sep 2005
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Handle: RePEc:upf:upfgen:954

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Related research
Keywords: Unit root tests; structural breaks; fractional integration; long memory;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  4. Choi, Kyongwook & Zivot, Eric, 2007. "Long memory and structural changes in the forward discount: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 342-363, April. [Downloadable!] (restricted)
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  8. Laura Mayoral & Juan J. Dolado & Jesús Gonzalo, 2003. "Long-range dependence in Spanish political opinion poll series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 137-155. [Downloadable!]
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  19. Juan J. Dolado & Jesús Gonzalo & Laura Mayoral, 2005. "Testing I(1) against I(d) alternatives in the presence of deteministic components," Economics Working Papers 957, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  26. Gary Biglaiser & Ching-to Albert Ma, 2006. "Moonlighting: Public Service and Private Practice," Boston University - Department of Economics - Working Papers Series WP2006-015, Boston University - Department of Economics. [Downloadable!]
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  30. Hosking, Jonathan R. M., 1996. "Asymptotic distributions of the sample mean, autocovariances, and autocorrelations of long-memory time series," Journal of Econometrics, Elsevier, vol. 73(1), pages 261-284, July. [Downloadable!] (restricted)
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  32. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  33. Bai, Jushan, 1999. "Likelihood ratio tests for multiple structural changes," Journal of Econometrics, Elsevier, vol. 91(2), pages 299-323, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Katsumi Shimotsu, 2006. "Simple (but effective) tests of long memory versus structural breaks," Working Papers 1101, Queen's University, Department of Economics. [Downloadable!]
  2. Laura Mayoral, 2005. "Is the observed persistence spurious? A test for fractional integration versus short memory and structural breaks," Economics Working Papers 956, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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