Testing for a Deterministic Trend when there is Evidence of Unit-Root
AbstractWhilst the existence of a unit root implies that current shocks have permanent effects, in the long run, the simultaneous presence of a deterministic trend obliterates that consequence. As such, the long-run level of macroeconomic series depends upon the existence of a deterministic trend. This paper proposes a formal statistical procedure to distinguish between the null hypothesis of unit root and that of unit root with drift. Our procedure is asymptotically robust with regard to autocorrelation and takes into account a potential single structural break. Empirical results show that most of the macroeconomic time series originally analyzed by Nelson and Plosser (1982) are characterized by their containing both a deterministic and a stochastic trend.
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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 EM200801.
Length: 19 pages
Date of creation: Feb 2008
Date of revision: Jun 2010
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Web page: http://economia.ugto.org/
More information through EDIRC
Unit Root; Deterministic Trend; Trend Regression; R2;
Other versions of this item:
- 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.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-19 (All new papers)
- NEP-ECM-2008-01-19 (Econometrics)
- NEP-ETS-2008-01-19 (Econometric Time Series)
- NEP-MAC-2008-01-19 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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