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BEHAVIOR OF DICKEY–FULLER t-TESTS WHEN THERE IS A BREAK UNDER THE ALTERNATIVE HYPOTHESIS

Published online by Cambridge University Press:  05 October 2000

Stephen J. Leybourne  and
Paul Newbold
Stephen J. Leybourne
Affiliation:
University of Nottingham
Paul Newbold
Affiliation:
University of Nottingham
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Abstract

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This paper analyzes the limiting behavior of Dickey–Fuller t-tests when the true generating model is stationary around a broken linear trend. The cases of a break in level and a break in slope are considered separately and found to generate qualitatively different outcomes. In the asymptotic analysis, appropriate normalizations are applied to the break sizes. This leads to theoretical results that generate interesting predictions for sample sizes and break amounts of practical interest. Simulation evidence confirms the value of this approach to an asymptotic theory.

Type
Research Article
Information
Econometric Theory , Volume 16 , Issue 5 , October 2000 , pp. 779 - 789
Copyright
© 2000 Cambridge University Press