On infimum Dickey–Fuller unit root tests allowing for a trend break under the null
Trend breaks appear to be prevalent in macroeconomic time series. Consequently, to avoid the catastrophic impact that unmodelled trend breaks have on power, it is standard empirical practice to employ unit root tests which allow for such effects. A popularly applied approach is the infimum ADF-type...
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| Format: | Article |
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Elsevier
2014
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| Online Access: | https://eprints.nottingham.ac.uk/32663/ |
| _version_ | 1848794462065524736 |
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| author | Harvey, David I. Leybourne, Stephen J. Taylor, A.M. Robert |
| author_facet | Harvey, David I. Leybourne, Stephen J. Taylor, A.M. Robert |
| author_sort | Harvey, David I. |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | Trend breaks appear to be prevalent in macroeconomic time series. Consequently, to avoid the catastrophic impact that unmodelled trend breaks have on power, it is standard empirical practice to employ unit root tests which allow for such effects. A popularly applied approach is the infimum ADF-type test. Its appeal has endured with practitioners despite results which show that the infimum ADF statistic diverges to −∞−∞ as the sample size diverges, with the consequence that the test has an asymptotic size of unity when a break in trend is present under the unit root null hypothesis. The result for additive outlier-type breaks in trend (but not intercept) is refined and shows that divergence to −∞−∞ occurs only when the true break fraction is smaller than 2/32/3. An alternative testing strategy based on the maximum of the original infimum statistic and the corresponding statistic constructed using the time-reversed sample data is considered. |
| first_indexed | 2025-11-14T19:16:34Z |
| format | Article |
| id | nottingham-32663 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:16:34Z |
| publishDate | 2014 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-326632020-05-04T20:16:46Z https://eprints.nottingham.ac.uk/32663/ On infimum Dickey–Fuller unit root tests allowing for a trend break under the null Harvey, David I. Leybourne, Stephen J. Taylor, A.M. Robert Trend breaks appear to be prevalent in macroeconomic time series. Consequently, to avoid the catastrophic impact that unmodelled trend breaks have on power, it is standard empirical practice to employ unit root tests which allow for such effects. A popularly applied approach is the infimum ADF-type test. Its appeal has endured with practitioners despite results which show that the infimum ADF statistic diverges to −∞−∞ as the sample size diverges, with the consequence that the test has an asymptotic size of unity when a break in trend is present under the unit root null hypothesis. The result for additive outlier-type breaks in trend (but not intercept) is refined and shows that divergence to −∞−∞ occurs only when the true break fraction is smaller than 2/32/3. An alternative testing strategy based on the maximum of the original infimum statistic and the corresponding statistic constructed using the time-reversed sample data is considered. Elsevier 2014 Article PeerReviewed Harvey, David I., Leybourne, Stephen J. and Taylor, A.M. Robert (2014) On infimum Dickey–Fuller unit root tests allowing for a trend break under the null. Computational Statistics & Data Analysis, 78 . pp. 235-242. ISSN 1872-7352 Unit root test; Trend break; Minimum Dickey–Fuller test http://www.sciencedirect.com/science/article/pii/S0167947312003854 doi:10.1016/j.csda.2012.10.017 doi:10.1016/j.csda.2012.10.017 |
| spellingShingle | Unit root test; Trend break; Minimum Dickey–Fuller test Harvey, David I. Leybourne, Stephen J. Taylor, A.M. Robert On infimum Dickey–Fuller unit root tests allowing for a trend break under the null |
| title | On infimum Dickey–Fuller unit root tests allowing for a trend break under the null |
| title_full | On infimum Dickey–Fuller unit root tests allowing for a trend break under the null |
| title_fullStr | On infimum Dickey–Fuller unit root tests allowing for a trend break under the null |
| title_full_unstemmed | On infimum Dickey–Fuller unit root tests allowing for a trend break under the null |
| title_short | On infimum Dickey–Fuller unit root tests allowing for a trend break under the null |
| title_sort | on infimum dickey–fuller unit root tests allowing for a trend break under the null |
| topic | Unit root test; Trend break; Minimum Dickey–Fuller test |
| url | https://eprints.nottingham.ac.uk/32663/ https://eprints.nottingham.ac.uk/32663/ https://eprints.nottingham.ac.uk/32663/ |