Unit root tests with a break in innovation variance. (English) Zbl 1043.62107

Kim, Tae-Hwan; Leybourne, Stephen; Newbold, Paul

J. Econom. 109, No. 2, 365-387 (2002).

Summary: It is shown that an abrupt change in the innovation variance of an integrated process can generate spurious rejections of the unit root null hypothesis in routine applications of Dickey-Fuller tests. We develop and investigate modified test statistics, based on unit root tests of P. Perron [see Econmetrica 57, 1361–1401 (1989; Zbl 0683.62066)] for a time series with a changing level, or changing intercept and slope, which are applicable when there is a change in innovation variance of an unknown magnitude at an unknown location.

MSC:

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

Keywords:

Dickey-Fuller tests; integrated processes; Perron tests; structural break

Citations:

Zbl 0683.62066

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