Steven Cook, "Unit root testing in the presence of innovation variance breaks: a simple solution with increased power", Journal of Applied Mathematics, vol. 2, Article ID 830308, 8 pages, 2002. https://doi.org/10.1155/S1110757X02107029
Unit root testing in the presence of innovation variance breaks: a simple solution with increased power
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.