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Is Germany's GDP Trend-Stationary? A Measurement-With Theory Approach

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  • Bernd Lucke

    ()
    (Universitaet Hamburg)

Abstract

The time series properties of German GDP have been re-examined in recent research. Extending the sample to include GDP data from 1950 onwards, some researchers argued in favor of a trend-stationary rather than difference stationary representation of real log GDP. I show that this conclusion is based on an atheoretic trend model underlying the unit root tests. A simple linear trend model fails to take the post World-War II catch-up process properly into account. I use the Solow growth model to discriminate between transitional catch-up dynamics and long-run equilibrium growth. With the proper transformation of GDP data, I am able to use standard unit root tests and find that both ADF and KPSS tests suggest a difference stationary model. This evidence is supported by non-standard unit root tests which allow for polynomial trend representations.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 225 (2005)
Issue (Month): 1 (January)
Pages: 60-76

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Handle: RePEc:jns:jbstat:v:225:y:2005:i:1:p:60-76

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Related research

Keywords: Solow growth model; transistional dynamics; unit root tests;

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References

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  1. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  3. Lucke, Bernd & Lutkepohl, Helmut, 2004. "On unit root tests in the presence of transitional growth," Economics Letters, Elsevier, vol. 84(3), pages 323-327, September.
  4. Dumke, Rolf H, 1990. "Reassessing the Wirtschaftswunder: Reconstruction and Postwar Growth in West Germany in an International Context," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(4), pages 451-91, Special I.
  5. Shiller, Robert J. & Perron, Pierre, 1985. "Testing the random walk hypothesis : Power versus frequency of observation," Economics Letters, Elsevier, vol. 18(4), pages 381-386.
  6. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
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Citations

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Cited by:
  1. Sayan, Serdar & Tekin-Koru, Ayca, 2007. "Remittances, Business Cycles and Poverty: The Recent Turkish Experience," MPRA Paper 6029, University Library of Munich, Germany.
  2. Serdar Sayan, 2006. "Business Cycles and Workers' Remittances: How Do Migrant Workers Respond to Cyclical Movements of GDP at Home?," IMF Working Papers 06/52, International Monetary Fund.
  3. Knetsch, Thomas A. & Molzahn, Alexander, 2009. "Supply-side effects of strong energy price hikes in German industry and transportation," Discussion Paper Series 1: Economic Studies 2009,26, Deutsche Bundesbank, Research Centre.

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