NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Deterministic vs. Stochastic Trend in U.S. GNP, Yet Again

Francis X. Diebold, Abdelhak S. Senhadji

NBER Working Paper No. 5481
Issued in March 1996
NBER Program(s):   EFG

A sleepy consensus has emerged that U.S. GNP data are uninformative as to whether trend is better described as deterministic or stochastic. Although the distinction is not critical in some contexts, it is important for point forecasting, because the two models imply very different long-run dynamics and hence different long-run forecasts. We argue that, even for the famously recalcitrant GNP series, unit root tests over long spans can be informative. Our results make clear that uncritical repetition of the `we don't know, and we don't care' mantra is just as scientifically irresponsible as blind adoption of the view that `all macroeconomic series are difference-stationary,' or the view that `all macroeconomic series are trend-stationary.' There is simply no substitute for serious, case- by-case analysis.

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Document Object Identifier (DOI): 10.3386/w5481

Published: American Economic Review, 86, 1291-1298 (1996).

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