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Characterising the South African Business Cycle: Is GDP Difference-Stationary or Trend-Stationary in a Markov-Switching Setup?

Listed author(s):
  • Mehmet Balcilar

    ()

    (Department of Economics, Eastern Mediterranean University)

  • Rangan Gupta

    ()

    (Department of Economics, University of Pretoria)

  • Charl Jooste

    ()

    (Department of Economics, University of Pretoria)

  • Omid Ranjbar

    ()

    (Ministry of Industry, Mine and Trade, Tehran, Iran)

We test for a unit root in de-trended GDP in a two-state Markov switching specification using a modified Augmented Dickey-Fuller test. Our results show that a first difference GDP specification is preferred over the de-trended specification. In addition, the null of difference-stationary GDP cannot be rejected. By implication, shocks to GDP are permanent which validates specifying trend GDP with a stochastic component -something that is inherently assumed in a number of research papers that estimate potential GDP growth and that model GDP in general equilibrium specifications.

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File URL: http://repec.economics.emu.edu.tr/RePEc/emu/wpaper/15-03.pdf
File Function: First version, 2015
Download Restriction: no

Paper provided by Eastern Mediterranean University, Department of Economics in its series Working Papers with number 15-04.

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Length: 9 pages
Date of creation: 2015
Handle: RePEc:emu:wpaper:15-04.pdf
Contact details of provider: Phone: 90 (392) 630-1291
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Web page: http://economics.emu.edu.tr/

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