Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis

Abstract

Recently, Perron has carried out tests of the unit-root hypothesis against the alternative hypothesis of trend stationarity with a break in the trend occurring at the Great Crash of 1929 or at the 1973 oil-price shock. His analysis covers the Nelson-Plosser macroeconomic data series as well as a postwar quarterly real gross national product (GNP) series. His tests reject the unit-root null hypothesis for most of the series. This article takes issue with the assumption used by Perron that the Great Crash and the oil-price shock can be treated as exogenous events. A variation of Perron's test is considered in which the breakpoint is estimated rather than fixed. We argue that this test is more appropriate than Perron's because it circumvents ths problem of data-mining. The asymptotic distribution of the estimated breakpoint test statistic is determined. The data series considered by Perron are reanalyzed using this test statistic. The empirical results make use of the asyrnptotics developed for the test statistic as well as extensive finite-sample corrections obtained by simulation. The effect on the empirical results of fat-tailed and temporally dependent innovations is investigated. In brief, by treating the breakpoint as endogenous, we find that there is less evidence against the unit-root hypothesis than Perron finds for many of the data series but stronger evidence against it for several of the series, including the Nelson-Plosser industrial-production, nominal-GNP, and real-GNP series.

Production Smoothing in Developed Countries

“…One readily finds that this quantity is the same as that derived from the test statistic for Model (A) of earlier papers [13] [15], noting that the seasonal dummies are excluded from the list of the regressors in construction. Consequently, it is established by results or arguments in the articles described above that the limiting distribution of the quantity above is that claimed by the lemma.…”

“…Particular forms of the models presented in earlier reports [13] [14] are used for demonstration purposes. The data deflator for Japan used here was constructed using the fixed base method.…”

“…In these tables, all the data are in real and logarithmic terms. The notation used for the break types follows that reported for other studies in the literature [13] respectively stand for the sample period and number. τ denotes the t ratio of α .…”

“…Simply incorporating the ordinary dummy variables into Model (A) of [15] or fundamentally (A) of an earlier study [13], we obtain ( ) …”

Structural Distress Index: Structural Break Analysis of the Czech and Polish Stock Markets

“…The structural change can be understood as either qualitative or quantitative, for more detailed discussion about the topic we recommend Kuan and Hornik (1995). Structural change in econometric terms can be determined by endogenous change in data sets analysed in many studies including Zivot and Andrews (1992), Perron (1997) or Harvey et al (2001). When structural break points are analysed we assume that position of break point is unknown as in Andrews (1993).…”