Working Paper: NBER ID: w2695
Authors: Lawrence J. Christiano
Abstract: It has been suggested that existing estimates of the long-run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in post war U.S. GNP data. This paper shows that the statistical evidence does not warrant abandoning the no trend null hypothesis. A key part of the argument is that conventionally computed significance levels overstate the likelihood of the trend break alternative hypothesis. This is because they do not take into account that, in practice, the break date is chosen based on pre-test examination of the data.
Keywords: GNP; trend break; bootstrap methodology; time series analysis
JEL Codes: C12; C22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income innovations (O35) | GNP trend breaks (E10) |
| trend break in GNP data (E01) | overstatement of long-run impact of income changes (H31) |
| conventional significance levels (C12) | likelihood of rejecting no trend break hypothesis (C12) |
| bootstrap critical values (C46) | evidence of trend break (C22) |
| F statistic for trend break (C29) | support for null hypothesis of no trend break (C12) |