Unit Roots, Level Shifts and Trend Breaks in Per Capita Output: A Robust Evaluation

Mohitosh Kejriwal and Claude Lopez

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: Determining whether per capita output can be characterized by a stochastic trend is complicated by the fact that infrequent breaks in trend can bias standard unit root tests towards non-rejection of the unit root hypothesis. The bulk of the existing literature has focused on the application of unit root tests allowing for structural breaks in the trend function under the trend stationary alternative but not under the unit root null. These tests, however, provide little information regarding the existence and number of trend breaks. Moreover, these tests su er from serious power and size distortions due to the asymmetric treatment of breaks under the null and alternative hypotheses. This paper estimates the number of breaks in trend employing procedures that are robust to the unit root/stationarity properties of the data. Our analysis of the per-capita GDP for OECD countries thereby permits a robust classi?cation of countries according to the ?growth shift?, ?level shift? and ?linear trend? hypotheses. In contrast to the extant literature, unit root tests conditional on the presence or absence of breaks do not provide evidence against the unit root hypothesis.

Keywords: growth shift; level shift; structural change; trend breaks; unit root (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2009-12
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Unit Roots, Level Shifts, and Trend Breaks in Per Capita Output: A Robust Evaluation (2013)
Working Paper: Unit Roots, Level Shifts and Trend Breaks in Per Capita Output: A Robust Evaluation (2011)
Working Paper: Unit Roots, Level Shifts and Trend Breaks in PerCapita Output: A Robust Evaluation (2010)
Working Paper: Unit Roots, Level Shifts and Trend Breaks in Per Capita Output: A Robust Evaluation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1227

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