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On Trend Breaks and Initial Condition in Unit Root Testing

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  • Anton Skrobotov

    (RANEPA)

Abstract

Recent approaches in unit root testing have taken into account the influences of initial condition, trend, and breaks in data using pre-testing and union of rejection testing strategies based on obtained information. This paper proposes an extension of the Harvey et al. (2012b) approach to address the case of uncertainty over the initial condition. It has been shown that this approach has low power under a large initial condition because it includes GLS-based tests. Therefore, the efficiency of some ADF-type unit root tests with breaks under various magnitudes of initial condition will be investigated, and new decision rules will be proposed. Additionally, the modifications of the proposed algorithm, using pre-testing for the trend co- efficient and the possible presence of multiple structural trend breaks, are also discussed. The asymptotic behaviors of all tests are analyzed under both a local-to-unity representation of the autoregressive root and a local-to-zero representation of trend and breaks magnitudes. The proposed tests show good asymptotic and finite sample properties under various magnitudes of nuisance parameters.

Suggested Citation

  • Anton Skrobotov, 2016. "On Trend Breaks and Initial Condition in Unit Root Testing," Working Papers 0097, Gaidar Institute for Economic Policy, revised 2016.
    • Handle: RePEc:gai:wpaper:0097
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    References listed on IDEAS

    as
    1. Carrion-i-Silvestre, Josep Lluís & Kim, Dukpa & Perron, Pierre, 2009. "Gls-Based Unit Root Tests With Multiple Structural Breaks Under Both The Null And The Alternative Hypotheses," Econometric Theory, Cambridge University Press, vol. 25(6), pages 1754-1792, December.
    2. David I. Harvey & Stephen J. Leybourne & A.M. Robert Taylor, 2014. "Unit Root Testing under a Local Break in Trend using Partial Information on the Break Date," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(1), pages 93-111, February.
    3. David I. Harvey & Stephen J. Leybourne & A. M. Robert Taylor, 2010. "The impact of the initial condition on robust tests for a linear trend," Journal of Time Series Analysis, Wiley Blackwell, vol. 31(4), pages 292-302, July.
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    7. Cavaliere, Giuseppe & Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2011. "Testing For Unit Roots In The Presence Of A Possible Break In Trend And Nonstationary Volatility," Econometric Theory, Cambridge University Press, vol. 27(5), pages 957-991, October.
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    Cited by:

    1. Skrobotov, Anton, 2020. "Survey on structural breaks and unit root tests," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 58, pages 96-141.
    2. Meligkotsidou, Loukia & Tzavalis, Elias & Vrontos, Ioannis, 2017. "On Bayesian analysis and unit root testing for autoregressive models in the presence of multiple structural breaks," Econometrics and Statistics, Elsevier, vol. 4(C), pages 70-90.

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    More about this item

    Keywords

    unit root test; infimum Dickey-Fuller tests; local trend; local trend break; asymptotic local power; union of rejection; pre-testing; multiple breaks in trend.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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