Minimum LM Unit Root Test with One Structural Break

Junsoo Lee and Mark Strazicich ()

No 04-17, Working Papers from Department of Economics, Appalachian State University

Abstract: In this paper, we propose a minimum LM unit root test that endogenously determines a structural break in intercept and trend. Critical values are provided, and size and power properties are compared to the endogenous one-break unit root test of Zivot and Andrews (1992). Nunes, Newbold, and Kuan (1997) and Lee and Strazicich (2001) previously demonstrated that the Zivot and Andrews test exhibits size distortions in the presence of a break under the null. In contrast, the one-break minimum LM unit root test exhibits no size distortions in the presence of a break under the null. As such, rejection of the null unambiguously implies a trend stationary process.

New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2004
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