Behaviour of Dickey-Fuller Unit Root Tests Under Trend Misspecification
Stephen Leybourne (),
Tae-Hwan Kim () and
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Paul Newbold: Nottingham
Econometrics from University Library of Munich, Germany
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.
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Journal Article: Behaviour of Dickey-Fuller Unit-Root Tests Under Trend Misspecification (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpem:0311008
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