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BEHAVIOR OF DICKEY–FULLER t-TESTS WHEN THERE IS A BREAK UNDER THE ALTERNATIVE HYPOTHESIS

Author

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  • Leybourne, Stephen J.
  • Newbold, Paul

Abstract

This paper analyzes the limiting behavior of Dickey–Fuller t-tests when the true generating model is stationary around a broken linear trend. The cases of a break in level and a break in slope are considered separately and found to generate qualitatively different outcomes. In the asymptotic analysis, appropriate normalizations are applied to the break sizes. This leads to theoretical results that generate interesting predictions for sample sizes and break amounts of practical interest. Simulation evidence confirms the value of this approach to an asymptotic theory.

Suggested Citation

  • Leybourne, Stephen J. & Newbold, Paul, 2000. "BEHAVIOR OF DICKEY–FULLER t-TESTS WHEN THERE IS A BREAK UNDER THE ALTERNATIVE HYPOTHESIS," Econometric Theory, Cambridge University Press, vol. 16(5), pages 779-789, October.
    • Handle: RePEc:cup:etheor:v:16:y:2000:i:05:p:779-789_16
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    Citations

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    Cited by:

    1. Tae‐Hwan Kim & Stephen Leybourne & Paul Newbold, 2004. "Behaviour of Dickey–Fuller Unit‐Root Tests Under Trend Misspecification," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(5), pages 755-764, September.
    2. Georgiev, Iliyan, 2010. "Model-based asymptotic inference on the effect of infrequent large shocks on cointegrated variables," Journal of Econometrics, Elsevier, vol. 158(1), pages 37-50, September.
    3. Desire Wade Atchike & Zhen-Yu Zhao & Geriletu Bao, 2020. "The Relationship between Electricity Consumption, Foreign Direct Investment and Economic Growth: Case of Benin," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 507-515.
    4. Jalonoja, Kati & Liu, Xing & Pietola, Kyosti, 2006. "Asymmetric Transmission of Price Information Between the Meat Market of Finland and Other EU Countries - Testing for Signals on Oligopolistic Behaviour," Discussion Papers 11861, MTT Agrifood Research Finland.
    5. Dakpogan, Arnaud & Smit, Eon, 2018. "The effect of electricity losses on GDP in Benin," MPRA Paper 89545, University Library of Munich, Germany.
    6. Sen, Amit, 2001. "Behaviour of Dickey-Fuller F-tests under the trend-break stationary alternative," Statistics & Probability Letters, Elsevier, vol. 55(3), pages 257-268, December.
    7. D. Ventosa-Santaulària, 2009. "Spurious Regression," Journal of Probability and Statistics, Hindawi, vol. 2009, pages 1-27, August.
    8. Sen, Amit, 2008. "Behaviour of Dickey-Fuller tests when there is a break under the unit root null hypothesis," Statistics & Probability Letters, Elsevier, vol. 78(6), pages 622-628, April.
    9. Yang, Lixiong & Lee, Chingnun & Su, Jen-Je, 2017. "Behavior of the standard Dickey–Fuller test when there is a Fourier-form break under the null hypothesis," Economics Letters, Elsevier, vol. 159(C), pages 128-133.
    10. Pietola, Kyösti & Liu, Xing & Robles, Miguel, 2010. "Price, inventories, and volatility in the global wheat market," IFPRI discussion papers 996, International Food Policy Research Institute (IFPRI).
    11. Matsuki, Takashi & Sugimoto, Kimiko, 2013. "Stationarity of Asian real exchange rates: An empirical application of multiple testing to nonstationary panels with a structural break," Economic Modelling, Elsevier, vol. 34(C), pages 52-58.
    12. Ventosa-Santaulária, Daniel & Gómez-Zaldívar, Manuel, 2009. "Broken mean stationarity and the validity of the Dickey-Fuller test: the case of controlled inflation," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 29(1), May.

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