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Unit root tests for time series with level shifts: A comparison of different proposals

Markku Lanne and Helmut Lütkepohl ()

No 2001,5, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: A number of unit root tests which accommodate a deterministic level shift at a known point in time are compared in a Monte Carlo study. The tests differ in the way they treat the deterministic term of the DGP. It turns out that Phillips-Perron type tests have very poor small sample properties and cannot be recommended for applied work. Moreover, tests which estimate the deterministic term by a GLS procedure under the unit root null hypothesis are superior in terms of size and power properties relative to tests which estimate the deterministic term by OLS procedures.

Keywords: Univariate time series; unit root; structural shift; autoregression (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2001
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