articleJournal of Applied StatisticsSep 1, 2010Closed access

A new unit root test with two structural breaks in level and slope at unknown time

Deakin University · University of Duisburg-Essen

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Abstract

In this paper, we propose a new augmented Dickey–Fuller-type test for unit roots which accounts for two structural breaks. We consider two different specifications: (a) two breaks in the level of a trending data series and (b) two breaks in the level and slope of a trending data series. The breaks whose time of occurrence is assumed to be unknown are modeled as innovational outliers and thus take effect gradually. Using Monte Carlo simulations, we show that our proposed test has correct size, stable power, and identifies the structural breaks accurately.

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Authors

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Topics & keywords

Keywords
  • Outlier
  • Series (stratigraphy)
  • Monte Carlo method
  • Unit root
  • Unit root test
  • Mathematics
  • Statistics
  • Augmented Dickey–Fuller test
UN Sustainable Development Goals
  • Industry, innovation and infrastructure
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