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Unit roots and structural breaks in PNG macroeconomic time series

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Author Info

  • Seema Narayan
  • Russell Smyth

Abstract

Purpose – The purpose of this paper is to examine the time series properties of 26 macroeconomic variables in Papua New Guinea (PNG) over the period 1970-2006. Design/methodology/approach – Both unit root and stationarity tests without a structural break and the Lagrange Multiplier (LM) unit root test with one and two structural breaks developed by Lee and Strazicich are applied to each of the 26 macroeconomic variables in PNG. Compared to popular ADF-type endogenous unit root tests such as those proposed by Zivot and Andrews and Lumsdaine and Papell, the LM unit root test with one and two structural breaks has the advantage that it is unaffected by breaks under the null. Findings – The unit root and stationarity tests without structural breaks find at best mixed evidence of mean reversion and/or trend reversion for most variables. This result is likely to reflect the failure of these tests to allow for structural breaks, given the power to find stationarity declines if the data contain a structural break that is ignored. When the LM unit root test with one and two structural breaks is applied, it is found that at least 23 of the 26 macroeconomic variables are trend stationary. Originality/value – The time series properties of macroeconomic variables have important implications for several macroeconomic theories. There are, however, few studies of the time series properties of macroeconomic variables in developing countries and no comprehensive studies for any of the Pacific Island countries. This paper begins to fill this gap as the first to provide a systematic examination of the time series properties of macroeconomic variables in Paua New Guinea.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal International Journal of Social Economics.

Volume (Year): 35 (2008)
Issue (Month): 12 (October)
Pages: 963-984

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Handle: RePEc:eme:ijsepp:v:35:y:2008:i:12:p:963-984

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Related research

Keywords: Macroeconomics; Papua New Guinea; Time series analysis;

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