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A simultaneous test of unit root and level change

Author

Listed:
  • Duk Bin Jun

    (Department of Management Science, Korea Advanced Institute of Science and Technology, Seoul, Korea)

  • Dae Keun Park

    (Department of Management Science, Korea Advanced Institute of Science and Technology, Seoul, Korea)

Abstract

Testing the existence of unit root and|or level change is necessary in order to understand the underlying processes of time series. In many studies carried out so far, the focus was only on a single aspect of unit root and level change, therefore limiting a full assessment of the given problems. Our study aims to find a solution to the given problems by testing the two hypotheses simultaneously. We derive the likelihood ratio test statistic based on the state space model, and their distributions are created by the simulation method. The performance of the proposed method is validated by simulated time series and also applied to two Korean macroeconomic time series to confirm its practical application. This analysis can provide a solution to determine the underlying structure of arguable time series. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Duk Bin Jun & Dae Keun Park, 2010. "A simultaneous test of unit root and level change," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(3), pages 301-312.
  • Handle: RePEc:jof:jforec:v:29:y:2010:i:3:p:301-312
    DOI: 10.1002/for.1126
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    References listed on IDEAS

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    1. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    2. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
    3. 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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