Unit root tests in the presence of an innovation variance break that has power against the mean break stationary alternative

Amit Sen

Statistics & Probability Letters, 2009, vol. 79, issue 3, 354-360

Abstract: We show that Perron's [Perron, P., 1990. Testing for a unit root in a time series with a changing mean. Journal of Business and Economic Statistics 8, 153-162] unit root test can be oversized when there is a break in the innovation variance. We propose a modified Perron test that maintains its size, and has power against the mean-break stationary alternative.

Date: 2009
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