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Unusual Behaviour of Dickey-Fuller Tests in the Presence of Trend Misspecification: Comment

Boriss Siliverstovs

No 389, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In this paper we present explanation on the phenomenon pointed out in Cook and Manning (2002) on the unusual behaviour of the Dickey-Fuller test in the presence of trend misspecification. It appears that the rejection frequency of the unit root tests in the presence of trend misspecification is very sensitive to the number of the initial observations that need to be discarded. Based on the evidence from the Monte Carlo simulations, we show that for the DGP in Cook and Manning (2002), the unusual behaviour of the Dickey-Fuller test disappears as the number of the discarded initial observations becomes sufficiently large.

Keywords: Dickey-Fuller test; unit root hypothesis testing (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fin, nep-ifn and nep-mac
Date: 2003
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