Segmented Trends and Non-stationary Time Series

Peter Rappoport and Lucrezia Reichlin

Economic Journal, 1989, vol. 99, issue 395, 168-77

Abstract: Since the influential work of Charles R. Nelson and Charles Plosser (1982), many empirical studies have concluded that macroeconomic time series are difference stationary. This paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle, and where the trend shows infrequent shifts. The paper proposes tests between the difference stationary, and segmented trends models and applies these to the data of Nelson and Plosser. In general, the results indicate that prices are difference stationary but quantities follow segmented trend processes. Copyright 1989 by Royal Economic Society.

Date: 1989
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