Title: A probabilistic approach to unit root testing in the presence of structural breaks
Authors: Johan Lyhagen - Uppsala University (Sweden) [presenting]
Lars Forsberg - Uppsala University (Sweden)
Abstract: The consequences of structural beaks on unit root tests are well known and depend crucially on the assumptions made. This have been the ground for a new class of unit root tests that are robust against structural change. By motivating the AR process using a probabilistic argument we derive a unit root test with higher power than previous test in the presence ofstructural breaks. The method is exemplified using Credit Default Swap data.