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Is real GDP per capita a stationary process? Smooth transitions, nonlinear trends and unit root testing

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  • Juan Carlos Cuestas
  • Dean Garratt

Abstract

The aim of this paper is to provide additional evidence about the order of integration of constant price GDP per capita in a selection of countries. It does so by taking into account the possibility of non-linear deterministic trends and of asymmetric adjustment towards equilibrium. We find evidence of a global stationary ESTAR process around a nonlinear deterministic trend in almost half of the selected countries. These results show that nonlinearities affect real GDP series. By neglecting them, one can draw misleading conclusions from unit root tests. Specifically, the paper questions the so-called stylised fact of a near unit root which has so influenced macroeconomic thought over the past two decades.

Suggested Citation

  • Juan Carlos Cuestas & Dean Garratt, 2008. "Is real GDP per capita a stationary process? Smooth transitions, nonlinear trends and unit root testing," Working Papers 2008/12, Nottingham Trent University, Nottingham Business School, Economics Division.
  • Handle: RePEc:nbs:wpaper:2008/12
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecolec:v:147:y:2018:i:c:p:123-133 is not listed on IDEAS
    2. Phiri, Andrew, 2018. "Robust analysis of convergence in per capita GDP in BRICS economies," MPRA Paper 86936, University Library of Munich, Germany.
    3. Kitov, Ivan, 2012. "Why price inflation in developed countries is systematically underestimated," MPRA Paper 39059, University Library of Munich, Germany.
    4. Kaufmann, Hendrik & Kruse, Robinson & Sibbertsen, Philipp, 2012. "On tests for linearity against STAR models with deterministic trends," Economics Letters, Elsevier, vol. 117(1), pages 268-271.
    5. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
    6. Pei-Long Shen & Chih-Wei Su & Hsu-Ling Chang, 2013. "Are real GDP levels nonstationary across Central and Eastern European countries?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 13(1), pages 99-108, July.
    7. Burak Güriş & Burcu Yavuz Tiftikçigil & Muhammed Tıraşoğlu, 2017. "Testing for unemployment hysteresis in Turkey: evidence from nonlinear unit root tests," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(1), pages 35-46, January.
    8. Emmanuel Anoruo & Vasudeva N.R. Murthy, 2014. "Testing Nonlinear Inflation Convergence for the Central African Economic and Monetary Community," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 1-7.
    9. repec:spr:compst:v:33:y:2018:i:1:d:10.1007_s00180-017-0784-5 is not listed on IDEAS
    10. Steffen Lange & Peter Putz & Thomas Kopp, 2016. "Do Mature Economies Grow Exponentially?," Papers 1601.04028, arXiv.org.
    11. repec:spr:jknowl:v:8:y:2017:i:1:d:10.1007_s13132-015-0265-4 is not listed on IDEAS
    12. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.

    More about this item

    Keywords

    Real GDP per capita; Unit root tests; Persistence; Nonlinearities; Smooth transitions;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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