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Behaviour of Dickey-Fuller Unit Root Tests Under Trend Misspecification

Stephen Leybourne (), Tae-Hwan Kim () and Paul Newbold
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Paul Newbold: Nottingham

Econometrics from University Library of Munich, Germany

Abstract: We analyse the case where a unit root test is based on a Dickey-Fuller regression whose only deterministic term is a fixed intercept. Suppose, however, as could well be the case, that the actual data generating process includes a broken linear trend. It is shown theoretically, and verified empirically, that under the I(1) null and I(0) alternative hypotheses the Dickey-Fuller test can display a wide range of different characteristics depending on the nature and location of the break.

JEL-codes: C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2003-11-17
Note: Type of Document -
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Journal Article: Behaviour of Dickey-Fuller Unit-Root Tests Under Trend Misspecification (2004) Downloads
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