PERRONBREAKS - Unit Roots with Structural Breaks

[TomDoan]

Updated 24 September 2011 to save additional information.

Attached is a procedure for a very general approach to handling unit root tests allowing for structural breaks. It is based upon the set of models in Perron(2006), "Dealing with Structural Breaks," in Palgrave Handbook of Econometrics, Vol. 1, pp 278-352, but with extension to allow more than one break. An example of its use with one and two breaks is provided at http://www.estima.com/forum/viewtopic.php?f=8&t=1215.

perronbreaks.src

Procedure file

(12.81 KiB) Downloaded 147 times

@PerronBreaks(options) series start end

The main options for choosing the type of structural breaks are:

AO=[NONE]/MEAN/CRASH/JOIN/BREAK
IO=[NONE]/MEAN/CRASH/BREAK

BREAKS=Number of breaks [1]
Number of breaks (allows for any positive number)

AO are for "additive outliers" which change immediately the level (trend) of the series. IO are for "innovational outliers" which add a shift to the error term and thus affect the series more gradually.

The augmenting lags are selected separately for each test value(s) of the breaks. These are controlled by the following options:

LAGS=number of lags on the auxiliary regression [1]
METHOD=[FIXED]/GTOS/AIC/SBC
SLSTAY=significance level to keep lag in model with METHOD=GTOS [.10]

If METHOD=FIXED, the number of lags on the LAGS option is included in all regressions. If METHOD=GTOS (general-to-specific), lags are dropped from the end so long as the significance level of the t-statistic is greater than the SLSTAY value.

[Trebor]

Dear Tom,

I use Rats version 7.3 and if I run the innovational outlier version of the test with 2 breaks I always get the following message:

## MAT3. Matrix with Dimensions 0 x 2 Involved in %RESHAPE Operation. Need Number of Elements=1
The Error Occurred At Location 4039 of PERRONBREAKS
Line 246 of PERRONBREAKS

Could this be due to the Rats version I use or what could be the problem?
Any help would be appreciated.

Kind regards

[TomDoan]

Dear Tom,

I use Rats version 7.3 and if I run the innovational outlier version of the test with 2 breaks I always get the following message:

## MAT3. Matrix with Dimensions 0 x 2 Involved in %RESHAPE Operation. Need Number of Elements=1
The Error Occurred At Location 4039 of PERRONBREAKS
Line 246 of PERRONBREAKS

Could this be due to the Rats version I use or what could be the problem?
Any help would be appreciated.

Kind regards

What's posted above now won't run on 7.3 at all because it uses the %SIZE function. Are you using the PERRONBREAKS that came with your 7.3?

[Trebor]

Thanks for your quick reply, but I cann't find a PERRONBREAKS procedure in my RATS 7.3 package. Where I can get the file? Or is there another possibility to make the new procedure run with version 7.3?
Thanks.

[TomDoan]

The procedures browser on the web site should be able to get a 7.3 compatible version. It won't have all the output that the most recently posted version has.