Point Optimal Invariant Tests of a Unit Root in Models with Structural Change

53 Pages Posted: 28 Apr 2009

Date Written: April 27, 1997

Abstract

This study proposes tests for the null hypothesis of a unit root against shifting trend stationary alternatives. In particular, models with structural change in the form of level or trend shifts are studied. Roots local-to-unity are addressed in models with structural change and asymptotic power functions of the tests are derived using local-to-unity asymptotic framework. These tests have good power properties against shifting trend stationary alternatives. Tests in the presence of multiple shifts are also examined. The asymptotic distributions of the tests are derived under exogenous and endogenous shift point assumptions. The asymptotic and finite sample percentiles of the tests are tabulated using Monte Carlo integration. Monte Carlo simulations reveal that tests have good power and size properties against various alternatives.

Keywords: unit root test, point optimal, structural change

JEL Classification: C32

Suggested Citation

Balcilar, Mehmet, Point Optimal Invariant Tests of a Unit Root in Models with Structural Change (April 27, 1997). Available at SSRN: https://ssrn.com/abstract=1395705 or http://dx.doi.org/10.2139/ssrn.1395705

Mehmet Balcilar (Contact Author)

University of New Haven ( email )

300 Boston Post Road
West Haven, CT 06516
United States

HOME PAGE: http://www.mbalcilar.net

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