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

Giorgio Canarella, Rangan Gupta, Stephen Miller and Tolga Omay

No 201926, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Unit Root; Structural Break; Smooth Transition; Fourier Approximation; State-Dependent Nonlinearity (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-03
New Economics Papers: this item is included in nep-ets and nep-his
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Citations: View citations in EconPapers (1)

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