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Unit root testing in the presence of innovation variance breaks: a simple solution with increased power
Steven Cook
11Department of Economics, University of Wales Swansea, Singleton Park, UK
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
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.
