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The uncertain unit root in real GNP: A re-examination

  • Darné, Olivier

In this paper, we study the nature of the trend (deterministic or stochastic) for long spans of US GNP data (1869-1993). This distinction is important for macroeconomic theories, because the two models imply very different source of output fluctuations due to (transitory or permanent) shocks. We show, using an alternative method relative to the previous studies, that the period of turmoil experienced from 1929 to 1949 can be explained by several large shocks and some of them have a permanent effect due to the Great Depression and World War II. We also find evidence in favor of stochastic trend. These results show that the persistence in US output can be explained both by infrequent but significant economic and financial events (infrequent large shocks) and by period-by-period permanent innovations (frequent small shocks), such as productivity shocks resulting from technological changes, as the stochastic trend would imply.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 1 (March)
Pages: 153-166

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:1:p:153-166
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Cheung, Yin-Wong & Chinn, Menzie D, 1997. "Further Investigation of the Uncertain Unit Root in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 68-73, January.
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  5. Nelson, C-R & Murray, C-J, 1997. "The Uncertain Trend in U.S. GDP," Discussion Papers in Economics at the University of Washington 97-05, Department of Economics at the University of Washington.
  6. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit roots in real GNP: do we know, and do we care?," Discussion Paper / Institute for Empirical Macroeconomics 18, Federal Reserve Bank of Minneapolis.
  7. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
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  11. Bradley, Michael D & Jansen, Dennis W, 1995. "Unit Roots and Infrequent Large Shocks: New International Evidence on Output Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 867-93, August.
  12. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  13. Osborn, Denise R. & Heravi, Saeed & Birchenhall, C. R., 1999. "Seasonal unit roots and forecasts of two-digit European industrial production," International Journal of Forecasting, Elsevier, vol. 15(1), pages 27-47, February.
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  16. Pierre Perron & Serena Ng, 1996. "Useful Modifications to some Unit Root Tests with Dependent Errors and their Local Asymptotic Properties," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 435-463.
  17. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, vol. 83(1), pages 264-72, March.
  18. Diebold, Francis X & Senhadji, Abdelhak S, 1996. "The Uncertain Unit Root in Real GNP: Comment," American Economic Review, American Economic Association, vol. 86(5), pages 1291-98, December.
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  25. Philip Rothman, . "More Uncertainty About the Unit Root in U.S. Real GNP," Working Papers 9616, East Carolina University, Department of Economics.
  26. Balke, Nathan S, 1993. "Detecting Level Shifts in Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 81-92, January.
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