Alternative lag length selection criteria and the split-trend stationarity hypothesis

This study asks whether evidence that key macroeconomic time series are stationary around broken trends is robust to using different criteria to determine the lag length in the ADF regressions. When lag lengths are determined using the Schwarz criterion or two different specific-to-general methods, tests for unit roots in several series in the Nelson-Plosser (1982) data and in US postwar real GNP find weaker evidence against the unit root hypothesis than either Perron (1989), who set the date for the break in the trend a priori or Zivot and Andrews (1992), who determined the break date endogenously.     

Has the structural break slowed down growth rates of stock markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country's stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modelled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, the UK and Japanese stock markets.     

Postwar slowdowns and long-run growth: a Bayesian analysis of structural break models

Using Bayesian methods, we re-examine the empirical evidence from Ben-David, Lumsdaine, and Papell (Empir Econ 28:303–319, 2003) regarding structural breaks in the long-run growth path of real output series for a number of OECD countries. Our Bayesian framework allows the number and pattern of structural changes in trend and variance to be endogenously determined. We find little evidence of postwar growth slowdowns across countries, and smaller output volatility for most of the developed countries after the end of World War II. Our empirical findings are consistent with neoclassical growth models, which predict increasing growth over the long run. The majority of the countries we analyze have grown faster in the postwar era as opposed to the period before the first break.     

CROSS-COUNTRY EVIDENCE ON OUTPUT GROWTH VOLATILITY: NONSTATIONARY VARIANCE AND GARCH MODELS

This paper revisits the issue of conditional volatility in real gross domestic product (GDP) growth rates for Canada, Germany, Italy, Japan, the United Kingdom, and the United States. Previous studies find high persistence in the volatility. This paper shows that this finding largely reflects a nonstationary variance. Output growth in the six countries became noticeably less volatile over the past few decades. In this paper, we employ the modified iterated cumulative sum of squares (ICSS) algorithm to detect structural change in the variance of output growth. One structural break exists in each of the six countries after identifying outliers and mean shifts in the growth rates. We then use generalized autoregressive conditional heteroskedasticity (GARCH) specifications, modeling output growth and its volatility with and without the break in volatility. The evidence shows that the time-varying variance falls sharply in Canada and Japan, and disappears entirely in Germany, Italy, the United Kingdom and the United States, once we incorporate the break in the variance equation of output for the six countries. That is, the integrated GARCH (IGARCH) effect proves spurious and the GARCH model demonstrates misspecification, if researchers neglect a nonstationary variance. Moreover, we also consider the possible effects of our more correct measure of output volatility on output growth as well as the reverse effect of output growth on its volatility. The conditional standard deviation possesses no statistical significance in all countries, except a significant negative effect in Japan. The lagged growth rate of output produces significant negative and positive effects on the conditional variances in Germany and Japan, respectively. No significant effects exist in Canada, Italy, the United Kingdom, and the United States.     

Does output have a unit root? New international evidence

In this paper unit-root tests for per capita output of 12 OECD countries are performed. Using traditional unit-root tests, it follows that the unit-root hypothesis cannot be rejected except for the US. However, following the approach of Perron (1989), which takes shifts in mean and/or trend into account, the null hypothesis of a unit-root can be rejected in most countries in our sample. In contrast to Perron, a method suggested by Christiano (1992)is used to determine the break date endogenously.     

Have output growth rates stabilised? evidence from the g‐7 economies

In this paper we consider an extension of Hamilton's Markov chain model of output growth that allows for a one‐time structural break in the hyperparameters. We fit this model to post‐war quarterly output growth data from the G‐7 economies and find evidence for such a structural break in each of them, although the break occurs at different times. The break is always associated with a decline in volatility and often with a narrowing of the mean growth differential between the expansionary and recessionary regimes. The results show that stabilisation has typically been achieved at the expense of a reduction in growth rates.     

Causal analyses between exports and economic growth in developing countries

This study investigates the prima facie causal relationship between the exports and output growth in 30 developing countries over the period from 1960 to 1988 in a multivariate framework. The information set considered for the output and exports models are ω = (domestic output, exports, labour and capital), and ω = (exports, domestic output, exchange rate and foreign output) respectively. This study indentities a feedback prima facie causal relationship between exports and output growth in five countries, export growth prima facie causes output growth in another six countries; output growth prima facie causes export growth in a further eight countries; and no causal relationship was observed between export growth and output growth in the remaining 11 countries. We also found that in 15 countries the foreign exchange rate prima facie caused export growth, and that in 12 countries world output caused export growth.     

Growth accounting for the euro area

This article is concerned with the estimation of euro area potential output growth and its decomposition according to the sources of growth. The growth accounting exercise is based on a multivariate structural time series model which combines the decomposition of total output according to the production function approach with price and wage equations that embody Phillips-type relationships linking inflation and nominal wage dynamics to the output gap and cyclical unemployment, respectively. Assuming a Cobb?CDouglas technology with constant returns to scale, potential output results from the combination of the trend levels of total factor productivity (TFP) and factor inputs, capital and labour (hours worked), which is decomposed into labour intensity (average hours worked), the employment rate, the participation rate and population of working age. The nominal variables (prices and wages) play an essential role in defining the trend levels of the components of potential output, as the latter should pose no inflationary pressures on prices and wages. The structural model is further extended to allow for the estimation of potential output growth and the decomposition according to the sources of growth at different horizons (long run, medium run and short run); in particular, we propose and evaluate a model-based approach to the extraction of the low-pass component of potential output growth at different cut-off frequencies. The approach has two important advantages: the signal extraction filters have an automatic adaptation property at the boundaries of the sample period, so that the real-time estimates do not suffer from what is often referred to as the ??end-of-sample bias??. Secondly, it is possible to assess the uncertainty of potential output growth estimates with different degrees of smoothness.     

On the persistence of prices in Mexico: a fractional integration approach

A relevant yet often overlooked characteristic of the inflation rate is its mean-reverting property. If a series has this feature, shocks eventually dissipate, whereas if it does not, they have a permanent effect on the series. The usual I(1) versus I(0) dichotomy in time-series econometrics goes only so far towards disentangling this issue. By employing a methodology that estimates the persistence of inflation by allowing (i) fractional integration and (ii) persistence and level shifts in the series, we aim to define whether it is stationary and/or mean reverting and, if so, during which periods. The results of our analysis for the period 1987–2015 are threefold: firstly, inflation in the eighties and nineties should be seen as a highly persistent yet mean-reverting process (not a random walk); secondly, inflation remained mean reverting, though became a short-memory (less persistent) process around the date of the implementation of the inflation-targeting framework of 2001; thirdly, during the later phase, the level of inflation also decreased and is now within the inflation target range set by Banco de México, namely 3 per cent with an interval of ±1 percentage point.     

CHINA'S ECONOMIC GROWTH: WHAT DO WE LEARN FROM MULTIPLE‐BREAK UNIT ROOT TESTS?

This paper investigates China's economic growth by performing multiple‐break unit root tests on the data of national and sectoral output and output per worker to identify their steady‐state and transitional growth paths. The evidence generated suggests that the growth behaviour of the Chinese economy is consistent with endogenous growth theory. The results of multiple‐break unit root tests are then explained within the endogenous growth framework, using historical observations on how the evolution of economic institution/environment causes changes in some institutional parameters and hence in the steady‐state growth rate of GDP per worker.     

Financial Deregulation And The Relationship Between The Economy And The Share Market In Australia

In this paper we investigate the effect of financial deregulation on the relationship between the macro-economy and the share market within the framework of a VAR using quarterly Australian data for four variables – aggregate share prices, real output, the term premium and the default premium. After an analysis of stationarity and cointegration of the variables, we specify the VAR in the first differences of the logs of share prices and output and the levels of the premia. We identify December 1983 as the most appropriate date for testing for a structural break in our model due to financial deregulation and find strong evidence supporting our hypothesis of a break at this date. We go on to estimate and simulate the model separately over two sub-samples: 1978(1)–1983(4) and 1984(1)–2001(2). While our results are not clear-cut, we find that, if anything, the deregulation of financial markets weakened the relationship between the share market and the rest of the economy.     

The growth effects of education in Australia

In this article, we estimate the growth effect of human capital with country-specific time series data for Australia. In doing so, we extended the Solow (1956) growth model by using educational attainment as a measure of human capital developed by Barro and Lee (2010). The extended Solow (1956) model performs well after allowing for the presence of structural changes. Our results, based on alternative time series methods, show that educational attainment has a small and significant permanent effect on the growth rate of per worker output in Australia.     

Aggregate infrastructure capital stock and long-run growth: Evidence from Finnish data

In this paper, Bayesian methods and the Finnish aggregate infrastructure capital series from 1860 to 2003 are used to explore how government infrastructure policy affects long-run output growth. We use Finnish data, since to the best of our knowledge the Finnish land and water construction investments series is the best available sufficiently long time series on aggregate infrastructure investments. The Finnish data provide strong and robust evidence indicating that permanent changes in government infrastructure policy have permanent effects on the growth rate of output.     

Do execution moratoriums increase homicide? Re-examining evidence from Illinois

This article revisits the event study by Cloninger and Marchesini (2006), who find that the declaration of the Illinois’ death penalty moratorium on 31 January 2000 had a homicide-promoting effect and resulted in 150 additional homicides over the period 2000–2003. We reassess the author’s identification strategy, which they refer to as ‘portfolio approach’ and which draws upon event studies in finance research. We argue that their methodology is not applicable in crime studies. Instead, we apply univariate time-series methods to test for a structural break at a known and unknown break date. We allow for unknown break points as the structural break might have occurred slightly earlier (criminals might have anticipated the moratorium) or later (due to persistence in criminal behaviour). In addition, we implement the synthetic control estimator which approximates the counterfactual homicide series by a weighted average of homicide outcomes in other US states. Based on various testing methods and two distinct data sets, we conclude that there is no empirical evidence to support the hypothesis that the Illinois’ execution moratorium significantly increased homicides.     

An Eclectic Approach to Estimating U.S. Potential GDP

Rennison (Comparing alternative output gap estimations: a Monte Carlo approach, 2003) has provided simulation-based evidence showing that the joint use of extended multivariate filters and structural vector autoregression models is optimal for estimating potential output. We use this approach to estimate the two components of potential GDP: the full-employment labour input and trend labour productivity. This decomposition is useful for identifying sources of fluctuations in potential output. It reveals, for example, that the vigorous growth rate of U.S. potential GDP recorded during the second half of the 1990s is attributable to a fall in the structural rate of unemployment and a marked upswing in trend productivity growth.     

Granger causality of the inflation–growth mirror in accession countries*

The paper presents a model in which the exogenous money supply causes changes in the inflation rate and the output growth rate. While inflation and growth rate changes occur simultaneously, the inflation acts as a tax on the return to human capital and in this sense induces the growth rate decrease. Shifts in the model's credit sector productivity cause shifts in the income velocity of money that can break the otherwise stable relationship between money, inflation, and output growth. Applied to two accession countries, Hungary and Poland, a VAR system is estimated for each that incorporates endogenously determined multiple structural breaks. Results indicate Granger causality positively from money to inflation and negatively from inflation to growth for both Hungary and Poland, as suggested by the model, although there is some feedback to money for Poland. Three structural breaks are found for each country that are linked to changes in velocity trends, and to the breaks found in the other country.     

Are business cycles stationary fluctuations around a deterministic trend? Empirical evidence from 79 developing countries

There is a large literature that tests the univariate time series properties of the real output series following the seminal work of Nelson and Plosser (1982). Whether or not real output is characterized by a unit root process has important implications. A unit root in real output, for instance, is inconsistent with the notion that business cycles are stationary fluctuations around a deterministic trend. In this paper, we investigate the univariate time series properties of real output for 79 developing countries using the conventional augmented Dickey and Fuller (1979) unit root test, the Zivot and Andrews’ (1992) one structural break unit root test, and the Lumsdaine and Papell (1997) two structural breaks unit root test. Our main finding is that, for 40 countries, real output is stationary around a trend. This indicates that business cycles are stationary fluctuations around a deterministic trend for only 51% of the developing countries in our sample.     

A quantitative reassessment of the finance–growth nexus: evidence from a multivariate VAR

The long-run relationship between financial development and economic growth is examined in a multivariate vector autoregression (VAR) framework using 10 sample countries. Difficulties surrounding the cross-country regressions and bivariate time series studies are outlined. The long-run financial development and output relationships are identified in a cointegrating framework through tests of over-identifying restrictions. We find bi-directional causality between financial development and economic growth in all the sample countries, conclusions that stand distinct from those in the existing empirical literature. We attribute our findings to: (i) analysis of a higher dimensional system, (ii) a new method of identifying the long-run economic relationships, and (iii) a new approach to long-run causality testing.     

Time series analysis of economic growth rate series in Nigeria: structural breaks,non-linearities and reasons behind the recent recession

This article deals with the modelling of growth rate time series in Nigeria with a view of detecting its statistical properties, structural breaks and non-linearities. We employ both fractional integration and structural break time series techniques in modelling the annual growth rate series of the Nigerian GDP growth rate for about 55 years. The data span between 1960 and 2017. The results show that Nigerian growth rate is unstable with non-linearities and long-range dependence structures. We also investigate what might explain these features and conclude that erratic political institutions, associated with poor economic management and insecurity in Nigeria, among others, in the decades after independence are the root causes of non-linearities observed, which have also led to the subsequent recent economic recession in Nigeria.     

New evidence on breaking trend functions in real GDPs from Great China Economic Area

This article explores the difference in the time series property of economic output for the Great China Economic Area (GCEA) (Mainland China, Hong Kong and Taiwan). Using the powerful Kim and Perron (2009) unit root test and real GDPs over the period 1992–2014 as the study sample, results indicate the presence of a break for all economies that corresponds to the Asian financial crisis. Additionally, allowing for a break leads to the rejection of the unit root hypothesis for Taiwan only. Important implications are provided. First, considering the presence of a break in testing for nonstationarity is important or false conclusions can be drawn. Second, given the stationarity of GDP found for Taiwan only, investors should look beyond any local economic shocks and focus more on world economy development when investing in Taiwan. By contrast, investors in Mainland China and Hong Kong should pay attention to any shock because it is likely to be persistent. Third, relevant authorities should recognize that any government policy intended to promote long-run economic growth may be ineffective in Taiwan whereas it can be more effective in Mainland China and Hong Kong.