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Author:Zivot, Eric 

Working Paper
Markov regime switching and unit root tests

We investigate the power and size performance of unit root tests when the data undergo Markov regime switching. All tests, including those robust to a single break in trend growth rate, have low power against a process with a Markov-switching trend. Under the null hypothesis, we find previously documented size distortions in Dickey-Fuller type tests caused by a single break in trend growth rate or variance do not generalize to most parameterizations of Markov switching in trend or variance. However, Markov switching in variance can lead to overrejection in tests allowing for a single break in ...
Working Papers , Paper 2001-013

Working Paper
Markov regime-switching and unit root tests

We investigate the power and size performance of unit root tests when the true data generating process undergoes Markov regime-switching. All tests, including those robust to a single break in trend growth rate, have very low power against a process with a Markov-switching trend growth rate as in Lam (1990). However, for the case of business cycle non-linearities, unit root tests are very powerful against models used as alternatives to Lam (1990) that specify regime-switching in the transitory component of output. Under the null hypothesis, the received literature documents size distortions ...
International Finance Discussion Papers , Paper 683

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