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Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence

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  • Banerjee, Anindya
  • Lumsdaine, Robin L
  • Stock, James H

Abstract

This paper investigates the possibility, raised by P. Perron (1989, 1990) and P. Rappoport and L. Reichlin (1989), that aggregate economic time series can be characterized as being stationary around broken trend lines. Unlike those authors, the authors treat the break date as unknown a priori. Asymptotic distributions are developed for recursive, rolling, and sequential tests for unit roots and/or changing coefficients in time series regressions. When applied to data on real postwar output from seven OECD countries, these techniques fail to reject the unit-root hypothesis for five countries (including the United States) but suggest stationarity around a shifted trend for Japan.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 10 (1992)
Issue (Month): 3 (July)
Pages: 271-87

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Handle: RePEc:bes:jnlbes:v:10:y:1992:i:3:p:271-87

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  1. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
  2. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  3. Kramer, Walter & Ploberger, Werner & Alt, Raimund, 1988. "Testing for Structural Change in Dynamic Models," Econometrica, Econometric Society, vol. 56(6), pages 1355-69, November.
  4. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  5. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  6. Bhargava, Alok, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 369-84, July.
  7. Cogley, T., 1989. "International Evidence On The Size Of The Random Walk In Output," Working Papers 89-02, University of Washington, Department of Economics.
  8. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  9. Mankiw, N. Gregory & Campbell, John, 1989. "International Evidence on the Persistence of Economic Fluctuations," Scholarly Articles 3224417, Harvard University Department of Economics.
  10. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  11. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  12. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  13. Sargan, John Denis & Bhargava, Alok, 1983. "Testing Residuals from Least Squares Regression for Being Generated by the Gaussian Random Walk," Econometrica, Econometric Society, vol. 51(1), pages 153-74, January.
  14. Kormendi, Roger C & Meguire, Philip, 1990. "A Multicountry Characterization of the Nonstationarity of Aggregate Output," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 77-93, February.
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