Unit root tests in the presence of an innovation variance break that has power against the mean break stationary alternative
We show that Perron's [Perron, P., 1990. Testing for a unit root in a time series with a changing mean. Journal of Business and Economic Statistics 8, 153-162] unit root test can be oversized when there is a break in the innovation variance. We propose a modified Perron test that maintains its size, and has power against the mean-break stationary alternative.
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Volume (Year): 79 (2009)
Issue (Month): 3 (February)
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- Perron, P., 1989.
"Testing For A Unit Root In A Time Series With A Changing Mean,"
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- 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.
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- Leybourne, S J, 1995. "Testing for Unit Roots Using Forward and Reverse Dickey-Fuller Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 559-71, November.
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