Smooth transitions and GDP growth in the European Union

In this paper we test whether GDP series in 12 European Union countries are integrated or are stationary around a deterministic component that may cha nge gradually and smoothly between two regimes over time. We find that in t wo-thirds of cases there appears to be a role for modelling with determinis tic functions that allow smooth transitions, in some cases standing alone, in others in conjunction with additional integrated regressors. These findi ngs constitute a challenge to traditional approaches to modelling breaking- trend behaviour in GDP, which typically impose the condition that breaks, w hen present, must occur instantaneously.