Journal of Applied Mathematics
Volume 2 (2002), Issue 5, Pages 233-240
Unit root testing in the presence of innovation variance breaks: a simple solution with increased power
Department of Economics, University of Wales Swansea, Singleton Park, Swansea SA2 8PP, Wales, UK
Received 30 July 2001; Revised 5 March 2002
Copyright © 2002 Steven Cook. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
The Dickey-Fuller unit root test is known to suffer severe
oversizing in the presence of innovation variance breaks. In this
paper, forward and reverse Dickey-Fuller regressions are proposed
as a means of correcting this size distortion. The results of
Monte Carlo experimentation show such an approach to result in
both satisfactory size properties and increased power relative to
previously suggested solutions.