| By: |
Manuel Gomez (School of Economics, Universidad de Guanajuato);
Daniel Ventosa-Santaularia (School of Economics, Universidad de Guanajuato) |
| Abstract: |
Whilst the existence of a unit root implies that current shocks have permanent
effects, in the long run, the simultaneous presence of a deterministic trend
obliterates that consequence. As such, the long-run level of macroeconomic
series depends upon the existence of a deterministic trend. This paper
proposes a formal statistical procedure to distinguish between the null
hypothesis of unit root and that of unit root with drift. Our procedure is
asymptotically robust with regard to autocorrelation and takes into account a
potential single structural break. Empirical results show that most of the
macroeconomic time series originally analyzed by Nelson and Plosser (1982) are
characterized by their containing both a deterministic
and a stochastic trend. |
| Keywords: |
Unit Root, Deterministic Trend, Trend Regression, R2. |
| JEL: |
C12 C13 C22 E30 |
| URL: |
http://d.repec.org/n?u=RePEc:gua:wpaper:em200801&r=ets |