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Unit root tests for time series with a structural break: When the break point is known

Author

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  • Lütkepohl, Helmut
  • Müller, Christian
  • Saikkonen, Pentti

Abstract

Unit root tests for time series with level shifts are considered. The level shift is assumed to occur at a known time point. In contrast to some other proposals the level shift is modeled as part of the intercept term of the stationary component of the data generation process which is separated from the unit root component. In this framework simple shift functions result in a smooth transition from one state to another both under the null and under the alternative hypothesis. In order to test for a unit root in this context the nuisance parameters are estimated in a first step and a standard unit root test e.g. of the Dickey-Fuller type is then applied to the residuals. The resulting test is shown to have a known asymptotic distribution under the null hypothesis of a unit root and nearly optimal asymptotic power under local alternatives. An empirical comparison with previous proposals is performed.

Suggested Citation

  • Lütkepohl, Helmut & Müller, Christian & Saikkonen, Pentti, 1999. "Unit root tests for time series with a structural break: When the break point is known," SFB 373 Discussion Papers 1999,33, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  • Handle: RePEc:zbw:sfb373:199933
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    Cited by:

    1. Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2006. "Testing the Null of Cointegration with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 623-646, October.

    More about this item

    Keywords

    univariate time series; unit root; structural shift; autoregression;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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