TESTING FOR UNIT ROOTS WITH BREAKS - EVIDENCE ON THE GREAT CRASH AND THE UNIT-ROOT HYPOTHESIS RECONSIDERED

Nelson and Plosser (1982), in a classic paper, failed to find strong e vidence against the null hypothesis of a generating process with a uni t autoregressive root for thirteen US macroeconomic time series, Perro n (1989) claimed that such evidence mas available for a majority of th ese series if the alternative hypothesis was of trend stationarity wit h a break in 1929, Zivot and Andrews (1992) treated the break date as endogenous, then finding strong evidence agcainst the null for a minor ity of these series, Our own analysis extends theirs by permitting a b reak under the null as well as the alternative hypothesis, and allowin g for the sequential nature of the testing, Our empirical findings com plete the circle, We find no strong evidence against the unit root hyp othesis for any of the thirteen Nelson-Plosser series.