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On the asymptotic behaviour of unit-root tests in the presence of a Markov trend

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  • Psaradakis, Zacharias

Abstract

This paper examines the behaviour of unit-root tests for I(1) time series with drift which is subject to Markov regime changes. It is shown that the asymptotic null distributions of the popular Dickey-Fuller statistics are different from the standard asymptotic distributions obtained under a no-break assumption. Monte Carlo experiments are used to illustrate the finite-sample implications of the theoretical results.

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  • Psaradakis, Zacharias, 2002. "On the asymptotic behaviour of unit-root tests in the presence of a Markov trend," Statistics & Probability Letters, Elsevier, vol. 57(1), pages 101-109, March.
    • Handle: RePEc:eee:stapro:v:57:y:2002:i:1:p:101-109
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    References listed on IDEAS

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    1. Jing Zhang & Robert A. Stine, 2001. "Autocovariance Structure of Markov Regime Switching Models and Model Selection," Journal of Time Series Analysis, Wiley Blackwell, vol. 22(1), pages 107-124, January.
    2. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    3. Pierre Perron & Serena Ng, 1996. "Useful Modifications to some Unit Root Tests with Dependent Errors and their Local Asymptotic Properties," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(3), pages 435-463.
    4. Stephen J. Leybourne And Paul Newbold, 2000. "Behaviour of the standard and symmetric Dickey-Fuller-type tests when there is a break under the null hypothesis," Econometrics Journal, Royal Economic Society, vol. 3(1), pages 1-15.
    5. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 61-82, Suppl. De.
    6. Zacharias Psaradakis, 2001. "Bootstrap Tests for an Autoregressive Unit Root in the Presence of Weakly Dependent Errors," Journal of Time Series Analysis, Wiley Blackwell, vol. 22(5), pages 577-594, September.
    7. Leybourne, Stephen J. & C. Mills, Terence & Newbold, Paul, 1998. "Spurious rejections by Dickey-Fuller tests in the presence of a break under the null," Journal of Econometrics, Elsevier, vol. 87(1), pages 191-203, August.
    8. Montañés, Antonio & Reyes, Marcelo, 1999. "The asymptotic behaviour of the Dickey-Fuller tests under the crash hypothesis," Statistics & Probability Letters, Elsevier, vol. 42(1), pages 81-89, March.
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    Cited by:

    1. Vasco Gabriel & Luis Martins, 2011. "Cointegration tests under multiple regime shifts: An application to the stock price–dividend relationship," Empirical Economics, Springer, vol. 41(3), pages 639-662, December.
    2. Aksoy Yunus & Leon-Ledesma Miguel A., 2008. "Non-Linearities and Unit Roots in G7 Macroeconomic Variables," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-44, February.
    3. Paap, Richard & van Dijk, Herman K, 2003. "Bayes Estimates of Markov Trends in Possibly Cointegrated Series: An Application to U.S. Consumption and Income," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(4), pages 547-563, October.

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