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Does U.K.’s Real GDP have a Unit Root? Evidence from a Multi-Century Perspective

Author

Listed:
  • Giorgio Canarella

    (Department of Economics, University of Nevada, Las Vegas, 89154-6005, United States)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Stephen M. Miller

    (Department of Economics, University of Nevada, Las Vegas, 89154-6005, United States)

  • Tolga Omay

    (Department of Economics, Atilim University, 06830 Kızılçaşar, Gölbaşı Ankara, Turkey)

Abstract

We employ the nonlinear unit-root test recently developed by Omay et al. (2018), as well as other linear and nonlinear tests, to examine the stationarity of five multi-century historical U.K. series of real output compiled by the Bank of England (Thomas and Dimsdale, 2017). Three series span 1270 to 2016 and two series span 1700 to 2016. These datasets represent the longest span of historical real output data available and, thus, provide the environment for which unit-root tests are most powerful. A key feature of the Omay et al. (2018) test is its simulataneous allowance for two types of nonlinearity: time-dependent (structural breaks) nonlinearity and state-dependent (asymmetric adjustment) nonlinearity. The key finding of the test, contrary to what other more popular nonlinear unit-root tests suggest, provides strong evidence that the main structure of the five series is stationary with a sharp trend break and an asymmetric nonlinear adjustment. This finding is highly significant from the perspective of current macroeconomic debate because it refutes, for the historical U.K. series at least, the most stylized fact that real output follows a non-stationary process.

Suggested Citation

  • Giorgio Canarella & Rangan Gupta & Stephen M. Miller & Tolga Omay, 2019. "Does U.K.’s Real GDP have a Unit Root? Evidence from a Multi-Century Perspective," Working Papers 201926, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201926
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    References listed on IDEAS

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    More about this item

    Keywords

    Unit Root; Structural Break; Smooth Transition; Fourier Approximation; State-Dependent Nonlinearity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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