Structural Breaks and Unit Root: Evidence from Pakistani Macroeconomic Time Series
19 Pages Posted: 20 Feb 2007
Date Written: December 15, 2006
The purpose of this paper is to examine the unit root properties of eleven Pakistani macroeconomic series using annual data. Along with traditional unit root tests, we use the procedure developed by Zivot and Andrews to test the null of unit root against the break-stationary alternative. Conventional unit root tests indicate that all variable are non-stationary at the levels. Results from Zivot and Andrews test suggest that we can reject the null of unit root for CPI and WPI at 5 percent significance level while we fail to reject the unit root hypothesis for the remaining 9 series. At the same time, the Zivot and Andrews test identifies endogenously the point of the single most significant structural break in every time series examined. The results show that ten of the eleven series studied bear witness to the presence of a structural break during the period 1972 to 1976.
Keywords: Structural break, Unit root, Pakistan
JEL Classification: C22
Suggested Citation: Suggested Citation