Behaviour of Dickey-Fuller Unit-Root Tests Under Trend Misspecification
We analyse the case where a unit-root test is based on a Dickey-Fuller regression the only deterministic term of which is a fixed intercept. Suppose, however, as could well be the case, that the actual data-generating process includes a broken linear trend. It is shown theoretically, and verified empirically, that under the I(1) null and I(0) alternative hypotheses the Dickey-Fuller test can display a wide range of different characteristics depending on the nature and location of the break. Copyright 2004 Blackwell Publishing Ltd.
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Volume (Year): 25 (2004)
Issue (Month): 5 (09)
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