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Unit Roots, Level Shifts and Trend Breaks in Per Capita Output: A Robust Evaluation

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  • Kejriwal, Mohitosh
  • Lopez, Claude

Abstract

Determining whether per capita output can be characterized by a stochastic trend is complicated by the fact that infrequent breaks in trend can bias standard unit root tests towards non-rejection of the unit root hypothesis. The bulk of the existing literature has focused on the application of unit root tests allowing for structural breaks in the trend function under the trend stationary alternative but not under the unit root null. These tests, however, provide little information regarding the existence and number of trend breaks. Moreover, these tests su¤er from serious power and size distortions due to the asymmetric treatment of breaks under the null and alternative hypotheses. This paper estimates the number of breaks in trend employing procedures that are robust to the unit root/stationarity properties of the data. Our analysis of the per-capita GDP for OECD countries thereby permits a robust classi�cation of countries according to the "growth shift", "level shift" and "linear trend" hypotheses. In contrast to the extant literature, unit root tests conditional on the presence or absence of breaks do not provide evidence against the unit root hypothesis.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25204.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:25204

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Keywords: growth shift; level shift; structural change; trend breaks; unit root;

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Cited by:
  1. Ghoshray Atanu & Kejriwal Mohitosh & Wohar Mark, 2014. "Breaks, trends and unit roots in commodity prices: a robust investigation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 18(1), pages 23-40, February.
  2. Mohitosh Kejriwal & Pierre Perron, 2009. "A Sequential Procedure to Determine the Number of Breaks in Trend with an Integrated or Stationary Noise Component," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics wp2009-005, Boston University - Department of Economics.
  3. Nuno Sobreira & Luís Catela Nunes & Paulo M.M. Rodrigues, 2013. "Characterizing economic growth paths based on new structural change tests," Working Papers, Banco de Portugal, Economics and Research Department w201313, Banco de Portugal, Economics and Research Department.
  4. Matteo Mogliani, 2010. "Residual-based tests for cointegration and multiple deterministic structural breaks: A Monte Carlo study," PSE Working Papers halshs-00564897, HAL.
  5. Sobreira, Nuno & Nunesz, Luis C. & Rodriguesz, Paulo M. M., 2012. "Neoclassical, semi-endogenous or endogenous growth theory? Evidence based on new structural change tests," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_291, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  6. Presno, María José & Landajo, Manuel & Fernández, Paula, 2014. "Non-renewable resource prices: A robust evaluation from the stationarity perspective," Resource and Energy Economics, Elsevier, Elsevier, vol. 36(2), pages 394-416.
  7. Fabien Candau & Michaël Goujon & Jean-François Hoarau & Serge Rey, 2014. "Real exchange rate and competitiveness of an EU's ultra-peripheral region: La Reunion Island," Economie Internationale, CEPII research center, CEPII research center, issue 137, pages 1-21.
  8. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.
  9. repec:hal:wpaper:halshs-00564897 is not listed on IDEAS
  10. Presno, María José & Landajo, Manuel & Fernández, Paula, 2012. "Non-renewable resource prices. A robust evaluation from the stationarity perspective," MPRA Paper 42523, University Library of Munich, Germany.

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