The endogenous two-break unit root test of Lumsdaine and Papell is derived assuming no structural breaks under the null. Thus, rejection of the null does not necessarily imply rejection of a unit root per se, but may imply rejection of a unit root without break. Similarly, the alternative does not necessarily imply trend stationarity with breaks, but may indicate a unit root with breaks. In this paper, we propose an endogenous two-break Lagrange multiplier unit root test that allows for breaks under both the null and alternative hypotheses. As a result, rejection of the null unambiguously implies trend stationarity. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

This paper examines the accuracy of break point estimation using the endogenous break unit root tests of Zivot and Andrews (1992) and Perron (1997). We find that these tests tend to identify the break point incorrectly at one‐period behind (TB‐1) the true break point (TB), where bias in estimating the persistence parameter and spurious rejections are the greatest. In addition, this outcome occurs under the null and alternative hypotheses, and more so as the magnitude of the break increases. Consequences of utilizing these endogenous break tests are similar to (incorrectly) omitting the break term Bt in Perron's (1989) exogenous test.

In this paper, we examine temporal properties of 11 natural resource real price series from 1870 to 1990. Recent studies by Ahrens and Sharma [Trends in natural resource commodity prices: deterministic or stochastic? J. Environ. Econom. Manage. 33(1997)59-74], Berck and Roberts [Natural resource prices: will they ever turn up? J. Environ. Econom. Manage. 31(1996)65-78], and Slade [Grade selection under uncertainty: least cost last and other anomalies, J. Environ. Econom. Manage. 15(1988)189-205], among others, find that many non-renewable resource prices have a stochastic trend. We revisit this issue by employing a Lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. We additionally show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy. Overall, the results in this paper are important in both a positive and normative sense; without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless. r 2005 Elsevier Inc. All rights reserved. JEL classification: Q31; C12; C53

This paper re-examines the stationarity of national health care expenditures and GDP in a panel setting utilizing data from 20 OECD countries over the period from 1960 to 1997. Previous research in this area has recognized the drawback of not allowing for structural breaks in their unit root tests and noted that their empirical results may not be robust. We advance the literature by utilizing a recently developed panel LM unit root test that allows for heterogeneous level shifts. In contrast to previous analyses that did not consider breaks, our results reject the unit root null hypothesis for both series.

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