Advanced Search
MyIDEAS: Login

Unit Roots, Trend Breaks, And Transitory Dynamics: A Macroeconomic Perspective

Contents:

Author Info

  • Kilian, Lutz
  • Ohanian, Lee E.

Abstract

It is common to interpret rejections of the unit-root null hypothesis in favor of a trend stationary process with possible trend breaks as evidence that the data are better characterized as stationary about a broken trend. This interpretation is valid only if the model postulated under the alternative hypothesis is the only plausible alternative to the model postulated under the null. We argue that there are economically plausible models that are not well captured under either the null hypothesis or the alternative hypothesis of these tests. We show that applied researchers who ignore this possibility are likely to reject the unit-root null with high probability in favor of a trend stationary process with possible breaks. Our evidence shows that this potential pitfall is both economically relevant and quantitatively important. We explore the extent to which applied users may mitigate inferential errors by using finite-sample and bootstrap critical values.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://journals.cambridge.org/abstract_S1365100501010094
File Function: link to article abstract page
Download Restriction: no

Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 6 (2002)
Issue (Month): 05 (November)
Pages: 614-632

as in new window
Handle: RePEc:cup:macdyn:v:6:y:2002:i:05:p:614-632_01

Contact details of provider:
Postal: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Fax: +44 (0)1223 325150
Web page: http://journals.cambridge.org/jid_MDYProvider-Email:journals@cambridge.org

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Robinson Kruse & Michael Frömmel & Lukas Menkhoff & Philipp Sibbertsen, 2009. "What do we know about real exchange rate non-linearities?," CREATES Research Papers 2009-50, School of Economics and Management, University of Aarhus.
  2. Atiq-ur-Rehman, 2011. "Impact of Model Specification Decisions on Unit Root Tests," Articles of International Econometric Review (IER), Econometric Research Association, vol. 3(2), pages 22-33, September.
  3. Atiq-ur-Rehman, Atiq-ur-Rehman & Zaman, Asad, 2008. "Model specification, observational equivalence and performance of unit root tests," MPRA Paper 13489, University Library of Munich, Germany.
  4. Yunus Aksoy & Miguel A. Leon-Ledesma, 2008. "Non-Linearities and Unit Roots in G7 Macroeconomic Variables," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 5.
  5. Darné, Olivier, 2009. "The uncertain unit root in real GNP: A re-examination," Journal of Macroeconomics, Elsevier, vol. 31(1), pages 153-166, March.
  6. Mohitosh Kejriwal & Claude Lopez, 2010. "Unit Roots, Level Shifts and Trend Breaks in PerCapita Output: A Robust Evaluation," University of Cincinnati, Economics Working Papers Series 2010-02, University of Cincinnati, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:6:y:2002:i:05:p:614-632_01

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Rule).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.