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Computational Economics

, Volume 20, Issue 3, pp 157–176 | Cite as

Testing for a Unit Root in a Process Exhibiting a Structural Break in the Presence of GARCH Errors

  • Chris Brooks
  • Alistair G. Rew
Article

Abstract

This paper considers the effect of GARCH errors on the tests proposed byPerron (1997) for a unit root in the presence of a structural break. We assessthe impact of degeneracy and integratedness of the conditional varianceindividually and find that, apart from in the limit, the testing procedure isinsensitive to the degree of degeneracy but does exhibit an increasingover-sizing as the process becomes more integrated. When we consider the GARCHspecifications that we are likely to encounter in empirical research, we findthat the Perron tests are reasonably robust to the presence of GARCH and donot suffer from severe over-or under-rejection of a correct null hypothesis.

unit roots structural breaks perron test GARCH 

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Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Chris Brooks
    • 1
  • Alistair G. Rew
    • 2
  1. 1.ISMA CentreUniversity of ReadingWhiteknightsU.K.
  2. 2.ISMA CentreUniversity of ReadingWhiteknightsU.K

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