Regression-Based Tests for a Change in Persistence
Stephen J. Leybourne
University of Nottingham
University of Nottingham - School of Economics; Yonsei University - Seoul Campus - College of Business and Economics
A. M. Robert Taylor
affiliation not provided to SSRN
Oxford Bulletin of Economics and Statistics, Vol. 68, No. 5, pp. 595-621, October 2006
We show that the minimal forward (reverse) recursive unit tests of Banerjee, Lumsdaine and Stock [Journal of Business and Economics Statistics (1992) Vol. 10, pp. 271-288] are consistent against the alternative of a change in persistence from I(0) to I(1) [I(1) to I(0)]. However, these statistics are also shown to diverge for series which are I(0) throughout. Consequently, a rejection by these tests does not necessarily imply a change in persistence. We propose a further test, based on the ratio of these statistics, which is consistent against changes either from I(0) to I(1), or vice versa, yet does not over-reject against constant I(0) series. Consistent breakpoint estimators are proposed.
Number of Pages in PDF File: 27Accepted Paper Series
Date posted: September 17, 2006
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