Journal of Time Series Analysis

Behaviour of Dickey–Fuller Unit‐Root Tests Under Trend Misspecification

Journal Article

Abstract.  We analyse the case where a unit‐root test is based on a Dickey–Fuller regression the only deterministic term of which is a fixed intercept. Suppose, however, as could well be the case, that the actual data‐generating process includes a broken linear trend. It is shown theoretically, and verified empirically, that under the I(1) null and I(0) alternative hypotheses the Dickey–Fuller test can display a wide range of different characteristics depending on the nature and location of the break.

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