A new unit root test with two structural breaks in level and slope at unknown time

Paresh Narayan () and Stephan Popp

Journal of Applied Statistics, 2010, vol. 37, issue 9, 1425-1438

Abstract: In this paper, we propose a new augmented Dickey-Fuller-type test for unit roots which accounts for two structural breaks. We consider two different specifications: (a) two breaks in the level of a trending data series and (b) two breaks in the level and slope of a trending data series. The breaks whose time of occurrence is assumed to be unknown are modeled as innovational outliers and thus take effect gradually. Using Monte Carlo simulations, we show that our proposed test has correct size, stable power, and identifies the structural breaks accurately.

Keywords: unit root test; multiple structural breaks; break date estimation; Monte Carlo simulations; US macroeconomic variables (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (363)

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Working Paper: A new unit root test with two structural breaks in level and slope at unknown time (2009)
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DOI: 10.1080/02664760903039883

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