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Using Monte Carlo simulation, the size of the DF–GLS test is examined when there is a neglected level or trend break under the null hypothesis. Unlike the original DF test, the DF–GLS test has size which is not distorted/inflated.
1Note that this de-trending method goes back to Granger and Newbold (Citation1974) who propose regression in first differences.
2As it is easily observed the two de-trending methods are asymptotically equivalent.
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