Spurious rejections by Dickey-Fuller tests in the presence of a break under the null. (English) Zbl 0944.62083

Leybourne, Stephen J.; Mills, Terence C.; Newbold, Paul

J. Econom. 87, No. 1, 191-203 (1998).

Summary: It is well known that if a series is generated by a process that is stationary around a broken trend, conventional Dickey-Fuller tests can have very low power. In this paper, the converse phenomenon is studied and illustrated. Suppose that the true generating process is integrated of order one, but with a break. Then it is shown that, if the break occurs early in the series, routine application of standard Dickey-Fuller tests can lead to a very serious problem of spurious rejection of the unit root null hypothesis.

MSC:

62M10	Time series, auto-correlation, regression, etc. in statistics (GARCH)
62P20	Applications of statistics to economics

Keywords:

convergence; smooth transitions; stationary tests; structural break; unit autoregressive roots; tables; time series

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