A Simultaneous Test of Unit Root and Level Change

31 Pages Posted: 2 Jun 2008

See all articles by Duk Bin Jun

Duk Bin Jun

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Dae Keun Park

Hanyang University

Date Written: May 2008

Abstract

Testing the existence of unit root and/or level change is necessary in order to understand the underlying processes of time series. In many studies carried out so far, the focus was only on a single aspect of unit root and level change, therefore limiting a full assess to the given problems. Our study aims to find a solution to the given problems by testing the two hypotheses simultaneously.

We derive the likelihood ratio test statistic based on the state space model, and their distributions are created by simulation method. The performance of the proposed method is validated by simulated time series and also applied to two Korean macroeconomic time series to confirm its practical application. This analysis can provide a solution to determine the underlying structure of arguable time series.

Keywords: Unit Root, Level change, State Space Model, Simulation

Suggested Citation

Jun, Duk Bin and Park, Dae Keun, A Simultaneous Test of Unit Root and Level Change (May 2008). KAIST College of Business Working Paper Series No. 2008-009, Available at SSRN: https://ssrn.com/abstract=1137539 or http://dx.doi.org/10.2139/ssrn.1137539

Duk Bin Jun

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Dae Keun Park (Contact Author)

Hanyang University ( email )

Seoul
Korea, Republic of (South Korea)

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