Unit roots in the presence of abrupt governmental interventions with an application to Brazilian data
✍ Scribed by Regina Celia Cati; Marcio G. P. Garcia; Pierre Perron
- Publisher
- John Wiley and Sons
- Year
- 1999
- Tongue
- English
- Weight
- 233 KB
- Volume
- 14
- Category
- Article
- ISSN
- 0883-7252
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✦ Synopsis
This paper considers econometric issues related to time-series data that have been subject to abrupt governmental interventions. The motivating example for this study is the Brazilian monthly in¯ation rate (1974 : 1±1993 : 6) which we use throughout for illustration. This series has been heavily in¯uenced by the eect of so-called shock plans implemented by various governments starting in the mid-1980s. The plans act as inliers' in the sense that the series is temporarily brought down to low levels before returning to its previous trend path. We analyse the eects on standard unit root tests and measures of persistence caused by the presence of these inliers'. We show a substantial bias in favour of concluding that the series is stationary and that shocks have temporary eects. We then construct appropriately corrected statistics which take into account the presence of the plans. These show, unlike the standard tests, that the stochastic behaviour of the in¯ation rate was indeed unstable over this period. Simulation results are presented to support the adequacy of our corrected statistics.