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Testing for unit roots using economics

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Author Info
Rómulo Chumacero

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Abstract

This paper considers the economic implications of having a unit root (UR) on the stochastic process of variables such as consumption or GDP. Using a variety of models, we develop indirect tests for unit roots based on sharp distinctions that should arise when the scale variable is difference stationary (DS) or trend stationary (TS). We show that these tests do not feature the undesirable size-power trade-off that characterizes traditional UR tests and apply them to a range of countries.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 102.

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Date of creation: Jul 2001
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Handle: RePEc:chb:bcchwp:102

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  1. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
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  2. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November. [Downloadable!] (restricted)
  3. Christiano, Lawrence J. & Eichenbaum, Martin, 1990. "Unit roots in real GNP: Do we know, and do we care?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 7-61, January. [Downloadable!] (restricted)
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  4. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December. [Downloadable!] (restricted)
  5. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation, Yale University. [Downloadable!]
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  6. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
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  7. John Y. Campbell, 1987. "Bond and Stock Returns in a Simple Exchange Model," NBER Working Papers 1509, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Lau, Sau-Him Paul, 1997. "Using stochastic growth models to understand unit roots and breaking trends," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1645-1667, August. [Downloadable!] (restricted)
  9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November. [Downloadable!] (restricted)
  10. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
  11. Burnside, Craig, 1998. "Solving asset pricing models with Gaussian shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 329-340, March. [Downloadable!] (restricted)
  12. Cochrane, John H., 1991. "A critique of the application of unit root tests," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 275-284, April. [Downloadable!] (restricted)
  13. Philip Rothman, . "More Uncertainty About the Unit Root in U.S. Real GNP," Working Papers 9616, East Carolina University, Department of Economics.
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  14. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alberto Humala, 2005. "Interest rate pass-through and financial crises: do switching regimes matter? the case of Argentina," Applied Financial Economics, Taylor and Francis Journals, vol. 15(2), pages 77-94, January. [Downloadable!] (restricted)
  2. Raimundo Soto & Matías Tapia, 2001. "Seasonal cointegration and the stability of the demand for money," Working Papers Central Bank of Chile 103, Central Bank of Chile. [Downloadable!]
  3. Rómulo A. Chumacero & J. Rodrigo Fuentes, 2002. "On the determinants of the Chilean Economic Growth," Working Papers Central Bank of Chile 134, Central Bank of Chile. [Downloadable!]
  4. Rómulo Chumacero, 2000. "Se Busca una Raíz Unitaria: Evidencia para Chile," Working Papers Central Bank of Chile 86, Central Bank of Chile. [Downloadable!]
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  5. Rómulo Chumacero, 2003. "A Toolkit for Analyzing Alternative Policies in The Chilean Economy," Working Papers Central Bank of Chile 241, Central Bank of Chile. [Downloadable!]
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