Testing for unit roots in the presence of structural change IRAN – GREECE CPI case

University essay from Lunds universitet/Statistiska institutionen

Abstract: In this thesis we consider different tests for unit roots in the presence of structural change. We present the theory that lies behind unit roots, what we mean by structural change and try to detect the instances that “breaks” occur in the data. When performing a unit root test, when there is a structural change the results are biased toward accepting a unit root. Therefore, special care must be taken if it is suspected that such breaks have happened. Moreover, we will try to check these circumstances in real life data and perform various tests over these data. Our data is about the CPI (consumer product index) of Greece and Iran during 1948-2003. We try to see whether social or political events in contemporary history of these two once empires of world, have had any effect on their economy. Knowing this history we try to see if there appears to be a “break” in our data at certain years.

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