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Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence

Author

Listed:
  • Banerjee, Anindya
  • Lumsdaine, Robin L
  • Stock, James H

Abstract

This paper investigates the possibility, raised by P. Perron (1989, 1990) and P. Rappoport and L. Reichlin (1989), that aggregate economic time series can be characterized as being stationary around broken trend lines. Unlike those authors, the authors treat the break date as unknown a priori. Asymptotic distributions are developed for recursive, rolling, and sequential tests for unit roots and/or changing coefficients in time series regressions. When applied to data on real postwar output from seven OECD countries, these techniques fail to reject the unit-root hypothesis for five countries (including the United States) but suggest stationarity around a shifted trend for Japan.

Suggested Citation

  • Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
    • Handle: RePEc:bes:jnlbes:v:10:y:1992:i:3:p:271-87
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