Comparison of Unit Root Tests for Time Series with Level Shifts

19 Pages Posted: 14 Feb 2003

See all articles by Markku Lanne

Markku Lanne

University of Helsinki - Faculty of Social Sciences

Helmut Luetkepohl

European University Institute; CESifo (Center for Economic Studies and Ifo Institute)

Pentti Saikkonen

University of Helsinki - Department of Statistics

Abstract

Unit root tests are considered for time series which have a level shift at a known point in time. The shift can have a very general nonlinear form, and additional deterministic mean and trend terms are allowed for. Prior to the tests, the deterministic parts and other nuisance parameters of the data generation process are estimated in a first step. Then, the series are adjusted for these terms and unit root tests of the Dickey-Fuller type are applied to the adjusted series. The properties of previously suggested tests of this sort are analysed and modifications are proposed which take into account estimation errors in the nuisance parameters. An important result is that estimation under the null hypothesis is preferable to estimation under local alternatives. This contrasts with results obtained by other authors for time series without level shifts.

Suggested Citation

Lanne, Markku and Luetkepohl, Helmut and Saikkonen, Pentti, Comparison of Unit Root Tests for Time Series with Level Shifts. Available at SSRN: https://ssrn.com/abstract=370487

Markku Lanne (Contact Author)

University of Helsinki - Faculty of Social Sciences ( email )

P.O. Box 17 (Arkadiankatu 7)
Helsinki, 00014
Finland
+358 2941 28731 (Phone)

HOME PAGE: http://https://blogs.helsinki.fi/lanne/

Helmut Luetkepohl

European University Institute ( email )

Villa San Paulo
Via della Piazzola 43
I-50133 Firenze
Italy
+39 055 4685 971 (Phone)
+39 055 4685 902 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Pentti Saikkonen

University of Helsinki - Department of Statistics ( email )

Finland
+09 191 24867 (Phone)

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