A simple unit root testing methodology that does not require knowledge regarding the presence of a break. Issue 3 (16th March 2018)

• Record Type: Journal Article
• Authors: Sen, Amit
• Is Part Of: Communications in statistics. Volume 47:Issue 3(2018)
• Page Start: 871
• Page End: 889
• Publication Date: 2018-03-16
• Subjects: Break date -- Level shift model -- Mixed model -- Unit root; C22; Mathematical statistics -- Periodicals; Mathematical statistics -- Data processing -- Periodicals; Digital computer simulation -- Periodicals; 519.5
• DOI: 10.1080/03610918.2017.1295154
• Languages: English
• ISSNs: 0361-0918

Abstract

ABSTRACT: We develop a simple methodology that allows practitioners to test for the presence of a unit root without a priori knowledge regarding the occurrence of a break under the null hypothesis. We use a pre-test that is readily available in the estimated regression used to calculate the unit root statistics, and so our methodology is very easy to implement. The t -statistic corresponding to the impulse dummy variables evaluated at break date estimator is used as a pre-test to ascertain whether a break exists under the null hypothesis. Finite sample simulations show that our methodology yields tests that maintain their size.