Income Convergence: The Dickey-Fuller Test under the Simultaneous Presence of Stochastic and Deterministic Trends
AbstractWe investigate the efficiency of the Dickey-Fuller (DF) test as a tool to examine the convergence hypothesis. In doing so, we first describe two possible outcomes, overlooked in previous studies, namely Loose Catching-up and Loose Lagging-behind. Results suggest that this test is useful when the intention is to discriminate between a unit root process and a trend stationary process, though unreliable when used to differentiate between a unit root process and a process with both deterministic and stochastic trends. This issue may explain the lack of support for the convergence hypothesis in the aforementioned literature.
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Bibliographic InfoPaper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EM200703.
Length: 8 pages
Date of creation: Mar 2007
Date of revision:
Publication status: Published in Brazilian Review of Econometrics (forthcoming)
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Divergence; Loose Catching-up/Lagging-behind; Convergence; Deterministic and Stochastic trends;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-ECM-2007-03-31 (Econometrics)
- NEP-ETS-2007-03-31 (Econometric Time Series)
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- Manuel Gomez & Daniel Ventosa-Santaularia, 2008.
"Testing for a Deterministic Trend when there is Evidence of Unit-Root,"
Department of Economics and Finance Working Papers
EM200801, Universidad de Guanajuato, Department of Economics and Finance, revised Jun 2010.
- Ventosa-Santaulària Daniel & Gómez-Zaldívar Manuel, 2011. "Testing for a Deterministic Trend When There is Evidence of Unit Root," Journal of Time Series Econometrics, De Gruyter, vol. 2(2), pages 1-26, January.
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