Minimum LM Unit Root Test with One Structural Break

Junsoo Lee · Mark C. Strazicich

616 citations0/0 files storedRePEc: Research Papers in Economics

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Abstract

In this paper, we propose a minimum LM unit root test that endogenously determines a structural break in intercept and trend. Critical values are provided, and size and power properties are compared to the endogenous one-break unit root test of Zivot and Andrews (1992). Nunes, Newbold, and Kuan (1997) and Lee and Strazicich (2001) previously demonstrated that the Zivot and Andrews test exhibits size distortions in the presence of a break under the null. In contrast, the one-break minimum LM unit root test exhibits no size distortions in the presence of a break under the null. As such, rejection of the null unambiguously implies a trend stationary process.

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References

1988Testing for a Unit Root in Time Series Regression 1989The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis 2002Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis 2003Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks 1997Further evidence on breaking trend functions in macroeconomic variables 1995Unit Root Tests in ARMA Models with Data-Dependent Methods for the Selection of the Truncation Lag 1992LM TESTS FOR A UNIT ROOT IN THE PRESENCE OF DETERMINISTIC TRENDS*1998Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time

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