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Unit root tests for time series with level shifts: A comparison of different proposals

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  • Lanne, Markku
  • Lütkepohl, Helmut

Abstract

A number of unit root tests which accommodate a deterministic level shift at a known point in time are compared in a Monte Carlo study. The tests differ in the way they treat the deterministic term of the DGP. It turns out that Phillips-Perron type tests have very poor small sample properties and cannot be recommended for applied work. Moreover, tests which estimate the deterministic term by a GLS procedure under the unit root null hypothesis are superior in terms of size and power properties relative to tests which estimate the deterministic term by OLS procedures. --

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2001,5.

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Date of creation: 2001
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Handle: RePEc:zbw:sfb373:20015

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Keywords: Univariate time series; unit root; structural shift; autoregression;

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  1. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-62, April.
  2. Vogelsang, T.J. & Perron, P., 1994. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," Cahiers de recherche 9422, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  4. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
  5. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
  6. Perron, Pierre & Vogelsang, Timothy J, 1992. "Testing for a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 467-70, October.
  7. repec:wop:humbsf:1999-88 is not listed on IDEAS
  8. Amsler, Christine & Lee, Junsoo, 1995. "An LM Test for a Unit Root in the Presence of a Structural Change," Econometric Theory, Cambridge University Press, vol. 11(02), pages 359-368, February.
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Cited by:
  1. Chang, C-L. & Khamkaew, T. & McAleer, M.J. & Tansuchat, R., 2009. "Interdependence of international tourism demand and volatility in leading ASEAN destinations," Econometric Institute Research Papers EI 2009-36, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  2. Boschi, Melisso & Girardi, Alessandro, 2009. "The contribution of domestic, regional and international factors to Latin America's business cycle," MPRA Paper 28147, University Library of Munich, Germany.
  3. Tiwari, Aviral & Shahbaz, Muhammad, 2011. "India's trade with USA and her trade balance: An empirical analysis," MPRA Paper 29023, University Library of Munich, Germany.
  4. Helmut Luetkepohl & Jürgen Wolters, 2001. "The Transmission of German Monetary Policy in the Pre-Euro Period," CESifo Working Paper Series 604, CESifo Group Munich.
  5. Tiwari, Aviral, 2010. "Is trade deficit sustainable in India? An inquiry," MPRA Paper 24451, University Library of Munich, Germany.
  6. Marcel Gorenflo, 2013. "Futures price dynamics of CO 2 emission allowances," Empirical Economics, Springer, vol. 45(3), pages 1025-1047, December.
  7. Andre Jungmittag & Hariolf Grupp, 2006. "Wechselwirkungen zwischen Innovations- und Wachstumsprozessen in Deutschland 1951-1999 im Vergleich zu 1850-1913," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 226(2), pages 180-207, March.
  8. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.
  9. Serge REY & Jacques JAUSSAUD, 2009. "Long-Run Determinants of Japanese Exports to China and the United States: A Sectoral Analysis," Working Papers 4, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2009.
  10. Joseph P. Byrne & Roger Perman, 2006. "Unit Roots and Structural Breaks: A Survey of the Literature," Working Papers 2006_10, Business School - Economics, University of Glasgow.

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