A simple testing procedure for unit root and model specification

Mauro Costantini and Amit Sen

Computational Statistics & Data Analysis, 2016, vol. 102, issue C, 37-54

Abstract: Tests for the joint null hypothesis of a unit root based on the components representation of a time series are developed. The proposed testing procedure is designed to detect a unit root as well as guide the practitioner regarding the specification of trend component of a time series. The limiting null distributions of the newly developed F-statistics are derived. Finite sample simulation evidence shows that the F-statistics maintain their size, and have power against the trend-break stationary alternative. The use of our methodology is illustrated through an empirical examination of the US–UK real exchange rate, the UK industrial production, and the UK CPI series.

Keywords: Unit root; Break date; Trend break; Level shift; F-test; Model mis-specification (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:102:y:2016:i:c:p:37-54

DOI: 10.1016/j.csda.2016.04.001

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