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Correcting size distortion of the Dickey-Fuller test via recursive mean adjustment

  • Cook, Steven
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    Leybourne et al. (J. Econom. 87 (1998) 191) have shown the Dickey-Fuller (J. Amer. Statist. Assoc. 74 (1979) 427) unit root test to suffer from severe oversizing in the presence of level breaks. In this paper it is shown that recursive mean adjustment can correct this distortion, even for large breaks.

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    File URL: http://www.sciencedirect.com/science/article/B6V1D-47254MD-7/2/844151114c4e4abdde3285bf8172c56e
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    Article provided by Elsevier in its journal Statistics & Probability Letters.

    Volume (Year): 60 (2002)
    Issue (Month): 1 (November)
    Pages: 75-79

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    Handle: RePEc:eee:stapro:v:60:y:2002:i:1:p:75-79
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    1. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
    2. 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.
    3. 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.
    4. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
    5. 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.
    6. Russell Davidson & James G. MacKinnon, 1994. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," Working Papers 903, Queen's University, Department of Economics.
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