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Asymmetric unit root tests in the presence of structural breaks under the null

  • Steven Cook

    ()

    (University of Wales Swansea)

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    Using Monte Carlo methods, the behaviour of the momentum threshold autoregressive (MTAR) unit root test of Enders and Granger (1998) is examined in the presence of structural breaks under the null. It is found that for level breaks the MTAR test exhibits similar behaviour to that derived by Leybourne et al. (1998) for the Dickey-Fuller (1979) test, with size distortion apparent for early breaks only. In contrast, the results for breaks in drift show the MTAR test to experience severe size distortion when breaks occur both early and late in the sample period. The divergence in results for the MTAR and DF tests is further examined, showing that in the presence of late breaks the MTAR test can lead a practitioner to draw false inferences of both stationarity and asymmetry.

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    File URL: http://www.accessecon.com/pubs/EB/2001/Volume3/EB-01C10002A.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 3 (2001)
    Issue (Month): 6 ()
    Pages: 1-10

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    Handle: RePEc:ebl:ecbull:eb-01c10002
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    1. 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.
    2. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
    3. Davidson, Russell & MacKinnon, James G, 1998. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 1-26, January.
    4. Bai, Jushan & Lumsdaine, Robin L & Stock, James H, 1998. "Testing for and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 395-432, July.
    5. 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.
    6. Leybourne, Stephen J. & C. Mills, Terence & Newbold, Paul, 1998. "Spurious rejections by Dickey-Fuller tests in the presence of a break under the null," Journal of Econometrics, Elsevier, vol. 87(1), pages 191-203, August.
    7. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-87, July.
    8. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    9. 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.
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