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.