Smooth Transitions and GDP Growth in the European Union
Posted: 15 Mar 2001
In this paper we test whether GDP series in 12 European Union countries are integrated or are stationary around a deterministic component that may change gradually and smoothly between two regimes over time. We find that in two-thirds of cases there appears to be a role for modeling with deterministic functions that allow smooth transitions, in some cases standing alone, in others in conjunction with additional integrated regressors. These findings constitute a challenge to traditional approaches to modeling breaking-trend behavior in GDP, which typically impose the condition that breaks, when present, must occur instantaneously.
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