Unit roots, nonlinearities and structural breaks

Niels Haldrup; Robinson Kruse; Timo Teräsvirta; Rasmus T. Varneskov

Unit roots, nonlinearities and structural breaks

Niels Haldrup, Robinson Kruse, Timo Teräsvirta, Rasmus T. Varneskov

Department of Economics and Business Economics

Research output: Working paper/Preprint › Working paper › Research

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Abstract

One of the most influential research fields in econometrics over the past decades concerns unit root testing in economic time series. In macro-economics much of the interest in the area originate from the fact that when unit roots are present, then shocks to the time series processes have a persistent effect with resulting policy implications. From a statistical perspective on the other hand, the presence of unit roots has dramatic implications for econometric model building, estimation, and inference in order to avoid the so-called spurious regression problem. The present paper provides a selective review of contributions to the field of unit root testing over the past three decades. We discuss the nature of stochastic and deterministic trend processes, including break processes, that are likely to affect unit root inference. A range of the most popular unit root tests are presented and their modifications to situations with breaks are discussed. We also review some results on unit root testing within the framework of non-linear processes.

Original language	English
Place of publication	Aarhus
Publisher	Institut for Økonomi, Aarhus Universitet
Number of pages	34
Publication status	Published - 24 Apr 2012

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Cite this

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