Does real U.K. GDP have a unit root? Evidence from a multi-century perspective

We employ linear and nonlinear unit-root tests to examine the stationarity of five multi-century historical U.K. series of real output compiled by the Bank of England. Three series span 1270 to 2016 and two series span 1700 to 2016. These datasets represent the longest span of historical real output...

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Published inApplied economics Vol. 52; no. 10; pp. 1070 - 1087
Main Authors Canarella, Giorgio, Gupta, Rangan, Miller, Stephen M., Omay, Tolga
Format Journal Article
LanguageEnglish
Published London Routledge 25.02.2020
Taylor & Francis Ltd
Subjects
Adjustment
Banks
Cointegration analysis
Economic theory
Fourier function
GDP
Gross Domestic Product
nonlinearity
Stabilization
state-dependence
time-dependence
Unit root
United Kingdom > UK
Online AccessGet full text
ISSN0003-6846
1466-4283
DOI10.1080/00036846.2019.1655138

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Abstract We employ linear and nonlinear unit-root tests to examine the stationarity of five multi-century historical U.K. series of real output compiled by the Bank of England. Three series span 1270 to 2016 and two series span 1700 to 2016. These datasets represent the longest span of historical real output data available and, thus, provide the environment for which unit-root tests are most powerful. A key feature of our test is its simultaneous allowance for two types of nonlinearity: time-dependent (structural breaks) nonlinearity and state-dependent (asymmetric adjustment) nonlinearity. The key finding of the test, contrary to what other more popular nonlinear unit-root tests suggest, provides strong evidence that the main structure of the five series is a stationary process characterized by an asymmetric nonlinear adjustment and a permanent break affecting both the intercept and the trend. A major policy implication of this finding is fiscal and/or monetary stabilization policies have only temporary effects on the output levels of the United Kingdom.
AbstractList We employ linear and nonlinear unit-root tests to examine the stationarity of five multi-century historical U.K. series of real output compiled by the Bank of England. Three series span 1270 to 2016 and two series span 1700 to 2016. These datasets represent the longest span of historical real output data available and, thus, provide the environment for which unit-root tests are most powerful. A key feature of our test is its simultaneous allowance for two types of nonlinearity: time-dependent (structural breaks) nonlinearity and state-dependent (asymmetric adjustment) nonlinearity. The key finding of the test, contrary to what other more popular nonlinear unit-root tests suggest, provides strong evidence that the main structure of the five series is a stationary process characterized by an asymmetric nonlinear adjustment and a permanent break affecting both the intercept and the trend. A major policy implication of this finding is fiscal and/or monetary stabilization policies have only temporary effects on the output levels of the United Kingdom.
Author Canarella, Giorgio
Omay, Tolga
Gupta, Rangan
Miller, Stephen M.
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SubjectTerms Adjustment
Banks
Cointegration analysis
Economic theory
Fourier function
GDP
Gross Domestic Product
nonlinearity
Stabilization
state-dependence
time-dependence
Unit root
Title Does real U.K. GDP have a unit root? Evidence from a multi-century perspective
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