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

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  • Lanne, Markku
  • Lutkepohl, 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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  • Lanne, Markku & Lutkepohl, Helmut, 2002. "Unit root tests for time series with level shifts: a comparison of different proposals," Economics Letters, Elsevier, vol. 75(1), pages 109-114, March.
    • Handle: RePEc:eee:ecolet:v:75:y:2002:i:1:p:109-114
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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