Multiple Trend Breaks and the Unit-Root Hypothesis

Ever since Nelson and Plosser (1982) found evidence in favor of the unit-root hypothesis for 13 long-term annual macro series, observed unit-root behavior has been equated with persistence in the economy. Perron (1989) questioned this interpretation, arguing instead that the "observed" behavior may indicate failure to account for structural change. Zivot and Andrews (1992) restored confidence in the unit-root hypothesis by incorporating an endogenous break point into the specification. By allowing for the possibility of two endogenous break points, we find more evidence against the unit-root hypothesis than Zivot and Andrews, but less than Perron.