Pascalau, Razvan (2008): Unit Roots Tests with Smooth Breaks: An Application to the Nelson-Plosser Data Set.
Download (318Kb) | Preview
This paper reconsiders the nature of the trends (i.e. deterministic or stochastic) in macroeconomic time series. For this purpose, the paper employs two new tests that display robustness to structural breaks of unknown forms, irrespective of the date and/or location of the breaks. These tests approximate structural changes as smooth processes via Flexible Fourier transforms. The tests deliver strong evidence in favor of a nonlinear deterministic trend for real GNP, real per capita GNP, employment, the unemployment rate, and stock prices. Further, the two tests confirm the existence of stochastic trends in nominal GNP, consumer prices, real wages, monetary aggregates, velocity, and bond yields. In general, it appears that real variables are stationary while nominal ones have a unit root.
|Item Type:||MPRA Paper|
|Original Title:||Unit Roots Tests with Smooth Breaks: An Application to the Nelson-Plosser Data Set|
|Keywords:||Unit Roots, Stationarity Tests, Structural Change|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General
|Depositing User:||Razvan Pascalau|
|Date Deposited:||18. Feb 2008 00:28|
|Last Modified:||11. Feb 2013 16:53|
Amano, R. and van Norden, S. 1992. Unit root tests and the burden of proof. Bank of Canada, 92-7. Amsler, C. and Lee, J. 1995. An LM test for a unit root in the presence of a structural change. Econometric Theory, 11:359–368. Barro, R. 1976. Rational expectations and the role of monetary policy. Journal of Monetary Economics, 2:1–32. Becker, R., Enders, W., and Hurn, S. 2004. A general test for time dependence in param- eters. Journal of Applied Econometrics, 19:899–206. Becker, R., Enders, W., and Lee, J. 2006. A stationarity test in the presence of an unknwon number of smooth breaks. Journal of Time Series Analysis, 27(3):381–409. Bhargava, A. 1986. On the theory of testing for unit roots in observed time series. Review of Economic Studies, 53:369–384. Blanchard, O. 1981. What is left of the multiplier accelerator? American Economic Review, 71:150–4. Burke, S. 1994. Confirmatory data analysis: The joint application of stationarity and unit root tests. University of Reading, 20. Christiano, L. 1992. Searching for a break in gnp. Journal of Business and Economic Statistics, 10:237–250. Clements, M. P. and Hendry, D. F. 1999. On winning forecasting competitions. Spanish Economic Review, 1:123–160. DeJong, D. 1992. Co-integration and trend-stationarity in macroeconomic time series. Journal of Econometrics, 52:347–370. DeJong, D. and Whiteman, C. 1991. Reconsidering trends and random walks in macroe- conomic time series. Journal of Monetary Economics, 28:221–254. Dickey, D. and Fuller, W. 1979. Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74:427–431. Dickey, D. and Fuller, W. 1981. Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49:1057–1072. Enders, W. and Lee, J. 2006. Testing for a unit root with a nonlinear fourier function. Mimeo, University of Alabama. Gallant, R. 1981. On the basis in flexible functional form and an essentially unbiased form: the flexible fourier form. Journal of Econometrics, 15:211–353. Gil-Alana, L. A. and Robinson, P. M. 1997. Testing of unit root and other nonstationary hypotheses in macroeconomic time series. Journal of Econometrics, 80(2):241–268. Kapetianos, G., Shin, Y., and Snell, A. 2003. Testing for a unit root in the nonlinear star framework. Journal of Econometrics, 112:359–379. Kwaitowski, D., Phillips, P., Schmidt, P., and Shin, Y. 1992. Testing the null hypothesis of stationarity against the null hypothesis of a unit root. Journal of Econometrics, 54:159–78. Kydland, F. and Prescott, E. 1980. A competitive theory of fluctuations and the feasibility and desirability of stabilization policy. University of Chicago Press, pages 169–189. Leybourne, S., Newbold, P., and Vougas, D. 1998. Unit roots and smooth transitions. Journal of Time Series Analysis, 19:83–97. Leybourne, S. J. and McCabe, B. P. M. 1994. A consistent test for a unit root. Journal of Business & Economic Statistics, 12(2):157–66. available at http://ideas.repec.org/a/bes/jnlbes/v12y1994i2p157-66.html. Maddala, G. and Kim, I.-M. 1998. Unit roots, cointegration and structural change. Cambridge University Press. Nelson, C. and Plosser, C. 1982. Trends and random walks in macroeconomic time series. Journal of Monetary Economics, 10:139–162. Ng, S. and Perron, P. 1995. Unit root tests in arma models with data-dependent methods for the selection of the truncation lag. Journal of the American Statistical Association, 90:269–281. Perron, P. 1989. The Great Crash, the oil price shock and the unit root hypothesis. Econometrica, 57:1361–401. Perron, P. 1997. Further evidence on breaking trend functions in macroeconomic variables. Journal of Econometrics, 80:355–385. Phillips, P. 1991. To criticize the critics: An objective Bayesian analysis of stochastic trends. Journal of Applied Econometrics, 6:333–364. Phillips, P. and Perron, P. 1988. Testing for a unit root in time series regression. Biometrika, 75:335–346. Rudebusch, G. 1993. The uncertain unit root in real gnp. The American Economic Review, 83(1):264–272. Sargan, J. and Bhargava, A. 1983. Testing residuals from least squares regression for being generated by the Gaussian random walk. Econometrica, 51:153–174. Schmidt, P. and Phillips, P. 1992. LM tests for a unit root in the presence of deterministic trends. Oxford Bulletin of Economics and Statistics, 54:257–287. Schwert, G. 1987. Effects of model specification on tests for unit roots. Journal of Monetary Economics, 20:73–103. Sims, C. 1988. Bayesian skepticism on unit root econometrics. Journal of Economic Dynamics and Control, 12:463–474. Stock, J. 1994. Deciding between I(1) and I(0). Journal of Econometrics, 63:105–131. Zivot, E. and Andrews, D. 1992. Further evidence on the Great Crash, the oil price shock and the unit root hypothesis. Journal of Business and Economic Statistics, 10:251–270. Zivot, E. and Phillips, P. 1994. A Bayesian analysis of trend determination in economic time series. Econometric Reviews, 13:291–336.