Unit Root Tests for Time Series with Level Shifts: A Comparison of Different Proposals

Abstract

A number of unit root tests which accommodate a deterministic level shift at a known point in time are compared in a Monte Carlo study. The tests differ in the way they treat the deterministic term of the DGP. It turns out that tests which estimate the deterministic term by a GLS procedure under the unit root null hypothesis are superior in terms of size and power properties relative to tests which estimate the deterministic term by OLS procedures.