Unit Root Testing under a Local Break in Trend using Partial Information on the Break Date*

Harvey, David I.; Leybourne, Stephen J.; Robert Taylor, A.M.

Abstract

We consider unit root testing allowing for a break in trend when partial information is available regarding the location of the break date. This takes the form of knowledge of a relatively narrow window of data within which the break takes place, should it occur at all. For such circumstances, we suggest employing a union of rejections strategy, which combines a unit root test that allows for a trend break somewhere within the window, with a unit root test that makes no allowance for a trend break. Asymptotic and _nite sample evidence shows that our suggested strategy works well, provided that, when a break does occur, the partial information is correct. An empirical application to UK interest rate data containing the 1973 ‘oil shock’ is also considered.

Citation

Harvey, D. I., Leybourne, S. J., & Robert Taylor, A. (2014). Unit Root Testing under a Local Break in Trend using Partial Information on the Break Date*. Oxford Bulletin of Economics and Statistics, 76(1), 93-111. https://doi.org/10.1111/obes.12013

• Journal Article Type: Article
• Online Publication Date: Jan 7, 2013
• Publication Date: 2014-02
• Deposit Date: Apr 6, 2016
• Publicly Available Date: Apr 6, 2016
• Journal: Oxford Bulletin of Economics and Statistics
• Print ISSN: 0305-9049
• Electronic ISSN: 1468-0084
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 76
• Issue: 1
• Pages: 93-111
• DOI: https://doi.org/10.1111/obes.12013
• Keywords: Unit root test; Breaks in trend; Minimum Dickey-Fuller test; Local GLS detrending; Union of rejections
• Public URL: https://nottingham-repository.worktribe.com/output/996980
• Publisher URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/obes.12013
• Additional Information: This is the peer reviewed version of the following article: Harvey, D. I., Leybourne, S. J. and Robert Taylor, A.M. (2014), Unit Root Testing under a Local Break in Trend using Partial Information on the Break Date. Oxford Bulletin of Economics and Statistics, 76: 93–111, which has been published in final form at http://dx.doi.org/10.1111/obes.12013. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.