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Joint hypothesis specification for unit root tests with a structural break *

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  • Josep Lluís Carrion-i-Silvestre
  • Andreu Sansó

Abstract

Several tests based on a t-ratio have been proposed in the literature to decide the order of integration of a time series allowing for a structural break. However, another approach based on testing a joint hypothesis of unit root and the irrelevance of some nuisance parameters is also feasible. This paper proposes new unit root tests consistent with the presence of a structural break applying this second perspective. Our approach deals both with the case where the break is not allowed under the null hypothesis, and where it is allowed. Simulations investigate the performance of this proposal compared to the existing tests and show important gains in terms of power. Copyright Royal Economic Society 2006

Suggested Citation

  • Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2006. "Joint hypothesis specification for unit root tests with a structural break *," Econometrics Journal, Royal Economic Society, vol. 9(2), pages 196-224, July.
    • Handle: RePEc:ect:emjrnl:v:9:y:2006:i:2:p:196-224
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    Cited by:

    1. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    2. Ventosa-Santaulària Daniel & Gómez-Zaldívar Manuel, 2011. "Testing for a Deterministic Trend When There is Evidence of Unit Root," Journal of Time Series Econometrics, De Gruyter, vol. 2(2), pages 1-26, January.
    3. Ghassan, Hassan B. & Fachin, Stefano, 2016. "Time series analysis of financial stability of banks: Evidence from Saudi Arabia," Review of Financial Economics, Elsevier, vol. 31(C), pages 3-17.
    4. Costantini, Mauro & Sen, Amit, 2016. "A simple testing procedure for unit root and model specification," Computational Statistics & Data Analysis, Elsevier, vol. 102(C), pages 37-54.
    5. D. Ventosa-Santaulària, 2009. "Spurious Regression," Journal of Probability and Statistics, Hindawi, vol. 2009, pages 1-27, August.

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