USING STOCHASTIC GROWTH-MODELS TO UNDERSTAND UNIT ROOTS AND BREAKING TRENDS

This paper provides economic underpinnings for some recent econometric models of unit roots and breaking trends. It shows that in an endogen ous growth model, difference stationarity is present in every growing variable; and this phenomenon is generated by the propagation mechanis m of the model. For an exogenous growth model, either difference stati onarity or trend stationarity may be present, depending on the nature of external impulses, Regarding long-run growth rates, permanent chang es in economic fundamentals lead to segmented trends in endogenous gro wth models, but only shifting trends in exogenous growth models.