CEE 4221 Study Guide - Quiz Guide: Structural Break, Unit Root, Null Hypothesis

• School: Temple University
• Department: Civil Engineering
• Course: CEE 4221
• Professor: Brooks

Document Summary

Testing for unit roots with structural breaks example: eurosterling interest rates. Brooks and rew (2002) examine whether eurosterling interest rates are best viewed as unit root process or not, allowing for the possibility of structural breaks in the series. Failure to account for structural breaks (caused, for example, by changes in monetary policy or the removal of exchange rate controls) may lead to incorrect inferences regarding the validity or otherwise of the expectations hypothesis. Their sample covers the period 1 january 1981 to 1 september 1997. They use the standard dickey-fuller test, the recursive and sequential tests of banerjee et al. They also employ the rolling test, the perron (1997) approach and several other techniques. Testing for unit roots with structural breaks in eurosterling interest rates . The findings for the recursive tests are that the unit root null should not be rejected at the. 10% level for any of the maturities examined.