Unit Root Testing with Stationary Covariates and a Structural Break in the Trend Function

Sebastian Fossati

No 2011-10, Working Papers from University of Alberta, Department of Economics

Abstract: The issue of testing for a unit root allowing for a structural break in the trend function is considered. The focus is on the construction of more powerful tests using the information in relevant multivariate data sets. The proposed test adopts the GLS detrending approach and uses correlated stationary covariates to improve power. As it is standard in the literature, the break date is treated as unknown. Asymptotic distributions are derived and a set of asymptotic and nite sample critical values are tabulated. Asymptotic local power functions show that power gains can be large. Finite sample results show that the test exhibits small size distortions and power that can be far beyond what is achievable by univariate tests.

Keywords: unit root test; CLS detrending; structural break (search for similar items in EconPapers)
JEL-codes: C22 C32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2011-05-01
New Economics Papers: this item is included in nep-ecm and nep-ets
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https://sites.ualberta.ca/~econwps/2011/wp2011-10.pdf Full text (application/pdf)

Related works:
Journal Article: Unit root testing with stationary covariates and a structural break in the trend function (2013)
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