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Statistical Adequacy and the Testing of Trend Versus Difference Stationarity

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  • Elena Andreou
  • Aris Spanos

Abstract

The debate on whether macroeconomic series are trend or difference stationary, initiated by Nelson and Plosser [Nelson, C. R.; Plosser, C. I. (1982). Trends and random walks in macroeconomic time series: some evidence and implications. Journal of Monetary Economics 10:139-162] remains unresolved. The main objective of the paper is to contribute toward a resolution of this issue by bringing into the discussion the problem of statistical adequacy . The paper revisits the empirical results of Nelson and Plosser [Nelson, C. R.; Plosser, C. I. (1982). Trends and random walks in macroeconomic time series: some evidence and implications. Journal of Monetary Economics 10:139-162] and Perron [Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica 57:1361-1401] and shows that several of their estimated models are misspecified. Respecification with a view to ensuring statistical adequacy gives rise to heteroskedastic AR( k ) models for some of the price series. Based on estimated models which are statistically adequate, the main conclusion of the paper is that the majority of the data series are trend stationary.

Suggested Citation

  • Elena Andreou & Aris Spanos, 2003. "Statistical Adequacy and the Testing of Trend Versus Difference Stationarity," Econometric Reviews, Taylor & Francis Journals, vol. 22(3), pages 217-237, January.
  • Handle: RePEc:taf:emetrv:v:22:y:2003:i:3:p:217-237
    DOI: 10.1081/ETC-120023897
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    Citations

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    Cited by:

    1. Vicente Martínez, Eva, 2006. "Properties of two U.S. inflation measures (1985-2005)," DES - Working Papers. Statistics and Econometrics. WS ws066818, Universidad Carlos III de Madrid. Departamento de Estadística.
    2. Bårdsen, Gunnar & Nymoen, Ragnar, 2006. "U.S. natural rate dynamics reconsidered," Memorandum 13/2006, Oslo University, Department of Economics.
    3. Q. Farooq Akram & Ragnar Nymoen, 2009. "Model Selection for Monetary Policy Analysis: How Important is Empirical Validity?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 35-68, February.
    4. Charles, Amélie & Darné, Olivier, 2012. "Trends and random walks in macroeconomic time series: A reappraisal," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 167-180.
    5. Olivier Darné & Amélie Charles, 2011. "Large shocks in U.S. macroeconomic time series: 1860-1988," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 5(1), pages 79-100, January.
    6. Abadir, Karim M. & Caggiano, Giovanni & Talmain, Gabriel, 2013. "Nelson–Plosser revisited: The ACF approach," Journal of Econometrics, Elsevier, vol. 175(1), pages 22-34.
    7. Maria Heracleous & Andreas Koutris & Aris Spanos, 2006. "Testing for Structural Breaks and other forms of Non-stationarity: a Misspecification Perspective," Computing in Economics and Finance 2006 493, Society for Computational Economics.
    8. Q. Farooq Akram & Ragnar Nymoen, 2006. "Model selection for monetary policy analysis – Importance of empirical validity," Working Paper 2006/13, Norges Bank.
    9. Atiq-ur-Rehman, 2011. "Impact of Model Specification Decisions on Unit Root Tests," International Econometric Review (IER), Econometric Research Association, vol. 3(2), pages 22-33, September.
    10. Spanos, Aris, 2010. "Akaike-type criteria and the reliability of inference: Model selection versus statistical model specification," Journal of Econometrics, Elsevier, vol. 158(2), pages 204-220, October.
    11. Iolanda Lo Cascio & Stephen Pollock, 2007. "Comparative Economic Cycles," Working Papers 599, Queen Mary University of London, School of Economics and Finance.
    12. Solveig Erlandsen & Ragnar Nymoen, 2008. "Consumption and population age structure," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(3), pages 505-520, July.
    13. Pohl, Walter & Schmedders, Karl & Wilms, Ole, 2016. "Asset prices with non-permanent shocks to consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 152-178.
    14. Bent Nielsen, 2008. "Power of Tests for Unit Roots in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 619-644, October.

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