On the distribution of Dickey-Fuller unit root statistics when there is a break in the innovation variance
We show that Dickey & Fuller's [Distribution of the estimator for autoregressive time series with a unit root. J. Amer. Statist. Assoc. 74, 427-431; Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica 49, 1057-1072] normalized estimator and F-statistics for the unit root null hypothesis will spuriously reject the null hypothesis if there is a break in the innovation variance relatively early in the sample.
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Volume (Year): 77 (2007)
Issue (Month): 1 (January)
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- 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 1057-1072, June.
- Hamori, Shigeyuki & Tokihisa, Akira, 1997. "Testing for a unit root in the presence of a variance shift1," Economics Letters, Elsevier, vol. 57(3), pages 245-253, December.
- Kim, Tae-Hwan & Leybourne, Stephen & Newbold, Paul, 2002. "Unit root tests with a break in innovation variance," Journal of Econometrics, Elsevier, vol. 109(2), pages 365-387, August.