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A simultaneous test of unit root and level change

✍ Scribed by Duk Bin Jun; Dae Keun Park

Publisher: John Wiley and Sons
Year: 2009
Tongue: English
Weight: 385 KB
Volume: 29
Category: Article
ISSN: 0277-6693
DOI: 10.1002/for.1126

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✦ Synopsis

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 assessment of 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 the 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. Copyright © 2009 John Wiley & Sons, Ltd.

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The authors are grateful to Mark J. Powers, the editor, and two anonymous referees for their helpful comments and suggestions. Valuable comments on earlier versions from Thomas Schwarz and Fumi Quong are also greatly appreciated. The views stated in this article are those of the authors and do not n