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Improved Unit Root Tests with Changes in the Intercept

Author

Listed:
  • Claude Lopez

Abstract

The present paper suggests a set of unit root tests allowing up to two changes in the intercept, within the local-to-unity framework. The truncation lag and the break date are selected endogenously. The finite sample critical values are tabulates and Monte carlo experiments are used to analyze the tests' behavior. Three main outcomes can be derived from the finite sample properties of the test: (i) the test performs better if the local-to-unity parameter is non-zero, (ii) it compares well with the commonly used Perron and Vogelsang (1992) and Clemente et al (1998) and (iii) it performs particularly well when the data is higly persistent and/or the data of limited span. The new tests are then used to investigate European inflation rates. Our results show strong evidence of (regime-wise) stationarity for all series.

Suggested Citation

  • Claude Lopez, 2005. "Improved Unit Root Tests with Changes in the Intercept," University of Cincinnati, Economics Working Papers Series 2005-04, University of Cincinnati, Department of Economics, revised 2006.
    • Handle: RePEc:cin:ucecwp:2005-04
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    Cited by:

    1. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    2. repec:ipg:wpaper:2014-047 is not listed on IDEAS
    3. Claude Lopez, 2009. "Euro-zone Inflation Rates: Stationary or Regime-wise Stationary Processes," Economics Bulletin, AccessEcon, vol. 29(1), pages 238-243.
    4. Lopez, Claude & Papell, David H., 2012. "Convergence of Euro area inflation rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1440-1458.
    5. Claude Lopez & Javier Reyes, 2009. "Stationary properties of the real interest rate and the per-capita consumption growth rate: empirical evidence for theoretical arguments," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1643-1651.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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