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Improved Unit Root Tests with Changes in the Intercept

Claude Lopez

University of Cincinnati, Economics Working Papers Series from University of Cincinnati, Department of Economics

Abstract: The present paper suggests a set of unit root tests allowing up to two changes in the intercept, within the local-to-unity framework. The truncation lag and the break date are selected endogenously. The finite sample critical values are tabulates and Monte carlo experiments are used to analyze the tests' behavior. Three main outcomes can be derived from the finite sample properties of the test: (i) the test performs better if the local-to-unity parameter is non-zero, (ii) it compares well with the commonly used Perron and Vogelsang (1992) and Clemente et al (1998) and (iii) it performs particularly well when the data is higly persistent and/or the data of limited span. The new tests are then used to investigate European inflation rates. Our results show strong evidence of (regime-wise) stationarity for all series.

Pages: 23 pages
Date: 2005, Revised 2006
New Economics Papers: this item is included in nep-ind
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Related works:
Journal Article: GLS-detrending and regime-wise stationarity testing in small samples (2009) Downloads
Working Paper: Euro-zone Inflation Rates: Stationary or Regime-wise Stationary Processes (2008) Downloads
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