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Determination of stochastic vs. deterministic trend in quarterly GDP of Pakistan

Author

Listed:
  • Khan, Zahid
  • Asghar, Zahid

Abstract

Many economic and financial time series show evidence of trending behavior or non stationarity in the mean. An important econometric goal is determining the most proper form of the trend in the data. The transformations of series depend on whether the series is trend stationary or difference stationary. In this paper, study is conducted to declare the nature of trend component in quarterly GDP of Pakistan whether it is trend stationary or difference stationary. It is necessary to know, because trend stationary and difference stationary models imply very different short run and long run dynamics. We have explored the type of trend in GDP series by ADF unit root test and also support our arguments by empirical distribution instead of asymptotical ones i.e., bootstrapping test. The purpose of the paper is not only to investigate the type of trend in the series by conventional methods but also to motivate small distribution theory like bootstrapping techniques that can helps ones in selection of advocate model for observed series.

Suggested Citation

  • Khan, Zahid & Asghar, Zahid, 2009. "Determination of stochastic vs. deterministic trend in quarterly GDP of Pakistan," MPRA Paper 22091, University Library of Munich, Germany, revised 10 Apr 2010.
    • Handle: RePEc:pra:mprapa:22091
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    References listed on IDEAS

    as
    1. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    2. 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.
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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