Testing for Unit Roots with Breaks: Evidence on the Great Crash and the Unit Root Hypothesis Reconsidered

C. R. Nelson and C. I. Plosser (1982), in a classic paper, failed to find strong evidence against the null hypothesis of a generating process with a unit autoregressive root for thirteen U.S. macroeconomic time series. P. Perron (1989) claimed that such evidence was available for a majority of these series if the alternative hypothesis was of trend stationarity with a break in 1929. E. Zivot and D. W. K. Andrews (1992) treated the break date as endogenous, then finding strong evidence against the null for a minority of these series. The authors' own analysis extends theirs by permitting a break under the null as well as the alternative hypothesis and allowing for the sequential nature of the testing. Their empirical findings complete the circle. The authors find no strong evidence against the unit root hypothesis for any of the thirteen Neslon-Plosser series. Copyright 1997 by Blackwell Publishing Ltd