FURTHER EVIDENCE ON BREAKING TREND FUNCTIONS IN MACROECONOMIC VARIABLES

This study first reexamines the findings of Perron (1989) regarding th e claim that most macroeconomic time series are best construed as stat ionary fluctuations around a deterministic trend function if allowance is made for the possibility of a shift in the intercept of the trend function in 1929 (a crash) and a shift in slope in 1973 (a slowdown in growth). Unlike that previous study, the date of possible change is n ot fixed a priori but is considered as unknown. We consider various me thods to select the break points and the asymptotic and finite sample distributions of the corresponding statistics. A detailed discussion a bout the choice of the truncation lag parameter in the autoregression and of its effect on the critical values is also included. Most of the rejections reported in Perron (1989) are confirmed using this approac h. Secondly, this paper investigates an international data set of post -war quarterly real GNP (or GDP) series for the G-7 countries. Our res ults are compared and contrasted to those of Banerjee et al. (1992) an d Zivot and Andrews (1992). In contrast to the theoretical results con tained in these papers, we derive the limiting distribution of the seq uential test without trimming. (C) 1997 Elsevier Science S.A.