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Activity Number: 468
Type: Contributed
Date/Time: Wednesday, August 9, 2006 : 2:00 PM to 3:50 PM
Sponsor: Business and Economics Statistics Section
Abstract - #305418
Title: New Tests for Joint Hypothesis of a Unit Root When There Is a Break in the Innovation Variance
Author(s): Amit Sen*+
Companies: Xavier University
Address: 3800 Victory Parkway, Cincinnati, OH, 45207,
Keywords: unit root ; innovation variance ; break ; Dickey Fuller f-tests
Abstract:

In a recent paper, Kim, Leybourne, and Newbold (2002) demonstrated the Dickey-Fuller t-statistic for the unit root null hypothesis is oversized when there is a fall in the innovation variance relatively early in the sample. Therefore, they develop t-statistics for the unit root null hypothesis using a modified GLS strategy based on the QMLE break-date estimator and the implied pre-break and post-break variance estimators. We develop F-statistics for the joint null hypothesis of a unit root when the data-generating process has a break in the innovation variance using the modified GLS strategy of Kim, Leybourne, and Newbold. We derive the asymptotic null distribution of the new statistics, tabulate their critical values, and present finite sample simulation evidence regarding their size and power.

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