Template-Type: ReDIF-Paper 1.0
Author-Name:Anton Skrobotov
Author-Name-First: Anton              
Author-Name-Last: Skrobotov 
Author-Workplace-Name: RANEPA
Title:   On Trend Breaks and Initial Condition in Unit Root Testing
Abstract: Recent approaches in unit root testing have taken into account the influences of initial
condition, trend, and breaks in data using pre-testing and union of rejection testing strategies
based on obtained information. This paper proposes an extension of the Harvey et al. (2012b)
approach to address the case of uncertainty over the initial condition. It has been shown that
this approach has low power under a large initial condition because it includes GLS-based
tests. Therefore, the efficiency of some ADF-type unit root tests with breaks under various
magnitudes of initial condition will be investigated, and new decision rules will be proposed.
Additionally, the modifications of the proposed algorithm, using pre-testing for the trend co-
efficient and the possible presence of multiple structural trend breaks, are also discussed. The
asymptotic behaviors of all tests are analyzed under both a local-to-unity representation of the
autoregressive root and a local-to-zero representation of trend and breaks magnitudes. The
proposed tests show good asymptotic and finite sample properties under various magnitudes
of nuisance parameters.           
Length:  16 pages
Creation-Date: 2016
Revision-Date:   2016
Classification-JEL: C12, C22
Keywords: unit root test, infimum Dickey-Fuller tests, local trend, local trend break, asymptotic local power, union of rejection, pre-testing, multiple breaks in trend.
File-URL: https://www.iep.ru/files/RePEc/gai/wpaper/0097Skrobotov.pdf
File-Format: Application/pdf
File-Function: Revised version, 2014
Handle: RePEc:gai:wpaper:0097