The Uncertain Unit Root in the U.S. Poverty Rate

Empirical Economics, No. 22, 1997

Posted: 13 Apr 1998

See all articles by Baldev Raj

Baldev Raj

Wilfrid Laurier University - School of Business & Economics

Daniel J. Slottje

Southern Methodist University (SMU) - Department of Economics

Abstract

The U.S. poverty rate, like many other aggregate economic time series, shows considerable persistence. It is logical to consider the model involving a unit root to provide a good description of the data generation process for the poverty rate. We pretest for unit roots in annual U.S. poverty rate data for the postwar period to examine its long-run features given the importance of a unit root for economic forecasting, macroeconometric cointegration modeling and Granger causality testing. Applying a number of available test procedures for pretesting on U.S. postwar poverty rate data, we find results that both support and contradict the claim that the poverty rate is a difference stationary process. The poverty rate data are found to be consistent with a unit root hypothesis when the alternative is I(0) with a linear trend. But the null hypothesis of a unit root is convincingly rejected when the alternative of I(0) with a broken trend line for a break at an endogenous point in time is considered. The estimate of the break in the trend corresponds to an information technology shock during the early 1970s.

JEL Classification: I32

Suggested Citation

Raj, Baldev and Slottje, Daniel J., The Uncertain Unit Root in the U.S. Poverty Rate. Empirical Economics, No. 22, 1997. Available at SSRN: https://ssrn.com/abstract=75430

Baldev Raj (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA

Daniel J. Slottje

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States

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