More powerful modifications of unit root tests allowing structural change

Stephen J. Leybourne, Tae Hwan Kim, Paul Newbold

Research output: Contribution to journalArticle

Abstract

It is well known that more powerful variants of Dickey-Fuller unit root tests are available. We apply two of these modifications, on the basis of simple maximum statistics and weighted symmetric estimation, to Perron tests allowing for structural change in trend of the additive outlier type. Local alternative asymptotic distributions of the modified test statistics are derived, and it is shown that their implementation can lead to appreciable finite sample and asymptotic gains in power over the standard tests. Also, these gains are largely comparable with those from GLS-based modifications to Perron tests, though some interesting differences do arise. This is the case for both exogenously and endogenously chosen break dates. For the latter choice, the new tests are applied to the Nelson-Plosser data.

Original languageEnglish
Pages (from-to)869-888
Number of pages20
JournalJournal of Statistical Computation and Simulation
Volume75
Issue number11
DOIs
Publication statusPublished - 2005 Nov 1

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Modelling and Simulation
  • Statistics, Probability and Uncertainty
  • Applied Mathematics

Fingerprint Dive into the research topics of 'More powerful modifications of unit root tests allowing structural change'. Together they form a unique fingerprint.

  • Cite this