EFFECT OF A SHIFT IN THE TREND FUNCTION ON DICKEY-FULLER UNIT-ROOT TESTS

This article analyzes the asymptotic behavior of the Dickey-Fuller uni t root tests when the variable is generated under the breaking trend h ypothesis. Our results show that the asymptotic behavior of these stat istics allows for the rejection of the unit root hypothesis. This asym ptotic finding contrasts with the results that can be found in the lit erature devoted to the analysis of the integration order of a variable in the presence of a structural break. However, some Monte Carlo exer cises show that the argument of Perron (1989, Econometrica 57, 1361-14 01) that the tests are biased in favor of nonrejection of the unit roo t hypothesis remains valid for sample sizes of practical interest.