Journal of Applied Mathematics

Journal of Applied Mathematics / 2002 / Article

Open Access

Volume 2 |Article ID 830308 | 8 pages | https://doi.org/10.1155/S1110757X02107029

Unit root testing in the presence of innovation variance breaks: a simple solution with increased power

Received30 Jul 2001
Revised05 Mar 2002

Abstract

The Dickey-Fuller unit root test is known to suffer severe oversizing in the presence of innovation variance breaks. In this paper, forward and reverse Dickey-Fuller regressions are proposed as a means of correcting this size distortion. The results of Monte Carlo experimentation show such an approach to result in both satisfactory size properties and increased power relative to previously suggested solutions.

Copyright © 2002 Hindawi Publishing Corporation. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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