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Statistical Adequacy and the Testing of Trend Versus Difference Stationarity

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Author Info

  • Elena Andreou
  • Aris Spanos

Abstract

The debate on whether macroeconomic series are trend or difference stationary, initiated by Nelson and Plosser [Nelson, C. R.; Plosser, C. I. (1982). Trends and random walks in macroeconomic time series: some evidence and implications. Journal of Monetary Economics10:139-162] remains unresolved. The main objective of the paper is to contribute toward a resolution of this issue by bringing into the discussion the problem of statistical adequacy. The paper revisits the empirical results of Nelson and Plosser [Nelson, C. R.; Plosser, C. I. (1982). Trends and random walks in macroeconomic time series: some evidence and implications. Journal of Monetary Economics10:139-162] and Perron [Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica57:1361-1401] and shows that several of their estimated models are misspecified. Respecification with a view to ensuring statistical adequacy gives rise to heteroskedastic AR(k) models for some of the price series. Based on estimated models which are statistically adequate, the main conclusion of the paper is that the majority of the data series are trend stationary.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 22 (2003)
Issue (Month): 3 ()
Pages: 217-237

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Handle: RePEc:taf:emetrv:v:22:y:2003:i:3:p:217-237

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Related research

Keywords: Statistical adequacy; Misspecification testing; Unit root testing; Dynamic heteroskedasticity models;

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Cited by:
  1. Olivier Darné & Amélie Charles, 2009. "Large shocks in U.S. macroeconomic time series: 1860–1988," Working Papers hal-00422502, HAL.
  2. Erlandsen, Solveig & Nymoen, Ragnar, 2005. "Consumption and population age structure," Memorandum 27/2004, Oslo University, Department of Economics.
  3. Karim Abadir & Giovanni Caggiano & Gabriel Talmain, 2005. "Nelson-Plosser Revisited: the ACF Approach," Working Papers 2005_7, Business School - Economics, University of Glasgow.
  4. Eva Vicente Martinez, 2006. "Properties Of Two U.S. Inflation Measures (1985-2005)," Statistics and Econometrics Working Papers ws066818, Universidad Carlos III, Departamento de Estadística y Econometría.
  5. Q. Farooq Akram & Ragnar Nymoen, 2006. "Model selection for monetary policy analysis – Importance of empirical validity," Working Paper 2006/13, Norges Bank.
  6. Atiq-ur-Rehman, 2011. "Impact of Model Specification Decisions on Unit Root Tests," International Econometric Review (IER), Econometric Research Association, vol. 3(2), pages 22-33, September.
  7. Iolanda Lo Cascio & Stephen Pollock, 2007. "Comparative Economic Cycles," Working Papers 599, Queen Mary, University of London, School of Economics and Finance.
  8. Bårdsen, Gunnar & Nymoen, Ragnar, 2006. "U.S. natural rate dynamics reconsidered," Memorandum 13/2006, Oslo University, Department of Economics.
  9. Maria Heracleous & Andreas Koutris & Aris Spanos, 2006. "Testing for Structural Breaks and other forms of Non-stationarity: a Misspecification Perspective," Computing in Economics and Finance 2006 493, Society for Computational Economics.
  10. Spanos, Aris, 2010. "Akaike-type criteria and the reliability of inference: Model selection versus statistical model specification," Journal of Econometrics, Elsevier, vol. 158(2), pages 204-220, October.
  11. Akram, Q. Farooq & Nymoen, Ragnar, 2007. "Model selection for monetary policy analysis How important is empirical validity?," Memorandum 14/2007, Oslo University, Department of Economics.
  12. Charles, Amélie & Darné, Olivier, 2012. "Trends and random walks in macroeconomic time series: A reappraisal," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 167-180.

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