A revisit of the unemployment rate, interest rate, GDP growth and Inflation of Pakistan: Whether Structural break or unit root?

Abstract

The study investigates the query of structural break or unit root considering four macroeconomic indicators; unemployment rate, interest rate, GDP growth, and inflation rate of Pakistan. The previous studies create ambiguity regarding the stationarity and non-stationarity of these variables. We employ Zivot & Andrews (1992) unit root test and Step Indicator Saturation (SIS) method for multiple break detection in mean. GDP growth and inflation rate are stationary at level whereas unit root tests fail to reject the null hypothesis of the unemployment rate and interest rate at level. However, Zivot and Andrew unit root test with a single endogenous break indicates that the unemployment rate and interest rate are stationary at level with a single endogenous break. On the other hand, the SIS method reveals that the series are stationary with multiple structural breaks. It is inferred that it is inappropriate to take the first difference of the unemployment rate and interest rate to attain stationarity. The results of this study confirmed that there exist multiple breaks in the macroeconomic variables considered in the context of Pakistan.

Cross-Sectional Analysis of Impulse Indicator Saturation Method for Outlier Detection Estimated via Regularization Techniques with Application of COVID-19 Data

“…Autometrics uses extending and contracting multiple-path search algorithms with user-specified significance levels through the model selection process. However, the choice of the significance level is the trade-off between the irrelevant and relevant dummy indicators or regressors, with tight significance level (0.001) significant variable omit-ted in the final model whereas, with 0.05 significance level, the model consists of irrelevant regressors [13][14][15].…”