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Unit Roots and Structural Breaks: A Survey of the Literature

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  • Joseph P. Byrne
  • Roger Perman

Abstract

Since Perron (1989) the time series literature has emphasised the importance of testing for structural breaks in typical economic data sets and pronounced the implications of structural breaks when testing for unit root processes. In this paper we survey recent developments in testing for unit roots taking account of possible structural breaks. In doing so we discuss the distinction between taking structural break dates as exogenously determined, an approach initially adopted in the literature, and endogenously testing break dates. That is, we differentiate between testing for breaks when the break date is known and when it is assumed to be unknown. Also important is the distinction between discrete breaks and gradual breaks. Additionally we describe tests for both single and multiple breaks and discuss some of the pitfalls of the latter.

Suggested Citation

  • Joseph P. Byrne & Roger Perman, 2006. "Unit Roots and Structural Breaks: A Survey of the Literature," Working Papers 2006_10, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:2006_10
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    Cited by:

    1. Junsoo Lee & Mark C. Strazicich, 2013. "Minimum LM unit root test with one structural break," Economics Bulletin, AccessEcon, vol. 33(4), pages 2483-2492.
    2. 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.
    3. Pami Dua & Divya Tuteja, 2013. "Interdependence Of International Financial Market-- The Case Of India And U.S," Working papers 223, Centre for Development Economics, Delhi School of Economics.
    4. David E. Giles & Ryan T. Godwin, 2011. "Testing for Multivariate Cointegration in the Presence of Structural Breaks: p-Values and Critical Values," Econometrics Working Papers 1110, Department of Economics, University of Victoria.
    5. Erol, Isil & Unal, Umut, 2015. "Role of Construction Sector in Economic Growth: New Evidence from Turkey," MPRA Paper 68263, University Library of Munich, Germany.
    6. Enders, Walter & Im, Kyung So & Lee, Junsoo & Strazicich, Mark C., 2010. "IV threshold cointegration tests and the Taylor rule," Economic Modelling, Elsevier, vol. 27(6), pages 1463-1472, November.
    7. Wårell, Linda, 2014. "The effect of a change in pricing regime on iron ore prices," Resources Policy, Elsevier, vol. 41(C), pages 16-22.

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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