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Testing for Unit Roots in Nepalese Macroeconomic Data

  • Min Bahadur Shrestha, Ph.D.


    (Nepal Rastra Bank)

Unit root test is viewed as mandatory on time series data since these data may possess specific properties like memory, trend and structural break. The results obtained by employing conventional regression methods without testing for the unit root in time series data might be misleading. This paper presents an overview of various unit root test methods and conducts the unit root test on Nepalese key macroeconomic data allowing one endogenous structural break. The test results show that out of the 18 macroeconomic variables, 10 have unit roots and the remaining 8 are stationary. An analysis of the structural break dates of these variables suggests that the Nepalese economy has gone through a structural change after mid-1980s.

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Article provided by Nepal Rastra Bank, Research Department in its journal NRB Economic Review.

Volume (Year): 18 (2006)
Issue (Month): (April)
Pages: 1-19

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Handle: RePEc:nrb:journl:v:18:y:2006:p:1-19
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  1. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  2. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
  3. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  4. Shrestha, M.B. & Chowdhury, K., 2005. "A Sequential Procedure for Testing Unit Roots in the Presence of Structural Break in Time Series Data: An Application to Quarterly Data of Nepal, 1970-2003," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(2), pages 31-46.
  5. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  6. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  7. Vogelsang, T.I. & Perron, P., 1991. "Nonstationary and Level Shifts With An Application To Purchasing Power Parity," Papers 359, Princeton, Department of Economics - Econometric Research Program.
  8. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
  9. Shrestha, M.B. & Chowdhury, k., 2006. "Financial Liberalization Index for Nepal," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 3(1), pages 41-54.
  10. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
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