Unit root tests with double trend breaks and the 1990s recession in Japan |
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Authors: | Arnaud Mehl |
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Institution: | C.E.R.E.S.A.-C.E.R.D.O., Université Paris-IX Dauphine, Place du Maréchal de Lattre de Tassigny, 75775 Paris Cedex 16, France |
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Abstract: | This paper applies to Japanese macroeconomic series unit root tests that allow for the possibility of up to two endogenous break points. The presence of a single structural break around the first oil price shock in 1973 turns out to be very sensitive to the amplitude of the data sample and, in particular, it disappears when one extends the sample to the observations of the 1990s. This may indicate the presence of a second structural break, the existence of which is tested with a unit root test with a two-break alternative hypothesis for which we compute finite sample critical values. Interestingly enough, the hypothesis of the absence of a second break occurring in the 1990s can be rejected. Such results seem to indicate that the deep recession of the 1990s in Japan may not be the reflection of a negative output-gap, but that of a fall in the growth trend of output as a consequence of a huge productivity shock. |
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Keywords: | Unit root Multiple breaks Growth trend Japan Recession |
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