Sankhya: The Indian Journal of Statistics

1999, Volume 61, Series B, Pt. 2, pp. 318-336

STRUCTURAL BREAK AND UNIT ROOT IN MACROECONOMIC TIME SERIES: EVIDENCE FROM A DEVELOPING ECONOMY

By

MADHUSUDAN GHOSH, Visva-Bharati, Santiniketan

SUMMARY. The paper carries out a number of tests of the unit-root hypothesis on 13 Indian annual macroeconomic time series to see how robust is the hypothesis to alternative testing procedures. The null hypothesis of a unit root has been found to be very sensitive to the specifications of the alternative hypothesis, in general, and to the specifications of structural break - exogenously or endogenously, in particular. This underlines the need for taking caution in specifying the alternative hypothesis before drawing any inference about the unit-root hypothesis. This also raises question about the applicability of the conventional cointegration tests in the presence of structural break in the data.

AMS (1991) subject classification. 62P20.

Key words and phrases. Structural break, unit-root hypothesis, macroeconomic time series.

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