New method improves accuracy of trend break tests in economic data.
The article explores how to test for a broken trend in data with unknown persistence. The researchers found that fixed-b trend break tests can be reliable even when the data shows fractional integration. They discovered that the critical values used in the tests need to be adjusted based on the fractional integration parameter to ensure accurate results. By using adaptive critical values, the tests can be correctly sized and more powerful, especially when the data displays strong dependence.