Conventional unit root tests are known to be unreliable in the presence of permanent volatility shifts. In this paper, we propose a new approach to unit root testing which is valid in the presence of a quite general class of permanent variance changes which includes single and multiple (abrupt...

We show that changes in the innovation covariance matrix of a vector of series can generate spurious rejections of the null hypothesis of co-integration when applying standard residual-based co-integration tests. A bootstrap solution to the inference problem is suggested which is shown to...

A test for the cointegrating rank of a vector autoregressive (VAR) process with a possible shift and broken linear trend is proposed. The break point is assumed to be known. Our test is not a likelihood ratio test but the deterministic terms including the broken trends are removed first by a...

This article is concerned with detecting additive outliers using extreme value methods. The test recently proposed for use with possibly non-stationary time series by Perron and Rodriguez [Journal of Time Series Analysis (2003) vol. 24, pp. 193-220], is, as they point out, extremely sensitive to...

We investigate the behaviour of rolling and recursive augmented Dickey-Fuller (ADF) tests against processes which display changes in persistence. We show that the power of the tests depend crucially on the window width and warm up parameter for the rolling and recursive procedures respectively,...