Are OECD Macroeconomic Variables Trend Stationary? Evidence from Panel Stationary Tests Allowing for a Structural Break and Cross-Sectional Dependence
The Singapore Economic Review
Posted: 26 Apr 2010 Last revised: 7 Jun 2010
Date Written: August 1, 2009
This article applies the panel stationarity test with a break proposed by Hadri and Rao (2008) to examine whether 14 macroeconomic variables of OECD countries can be best represented as random walk or stationary fluctuations around a deterministic trend. In contrast to previous studies, based essentially on visual inspection of the break type or just applying the most general break model, we use a model selection procedure based on BIC. We do this for each time series so that heterogeneous break models are allowed for in the panel. Our results suggest, overwhelmingly, that if we account for a structural break, cross-sectional dependence and choose the break models to be congruent with the data, then the null of stationarity cannot be rejected for all the 14 macroeconomic variables examined in this article. This is in sharp contrast with the results obtained by Hurlin (2004), using the same data but a different methodology.
Keywords: Panel stationarity test, structural breaks, bootstrap
JEL Classification: C12, C23, C52
Suggested Citation: Suggested Citation