On Structural Breaks and Nonstationary Fractional Intergration in Time Series

Abstract

The growth of an economy is determined largely by the growth of its Gross Domestic Product (GDP) over time. However, GDP and some economic series are characterized by nonstationarity, structural breaks and outliers. Many attempts have been made to analyze these economic series assuming unit root process even in the presence of changes in the mean level without considering possible fractional integration. This paper aims at examining the structural breaks and nonstationarity in the GDP series of some selected African countries with a view to determining the influence of structural breaks on the level of stationarity of these series. These series are found to be nonstationary with some evidence of long memory. They were found to experience one or more breaks over the years and this may be due to instability in the government and economic policies in the selected African countries. The measure of relative efficiency shows that autoregressive fractional integrated moving average (ARFIMA) models is better than the corresponding autoregressive integrated moving average (ARIMA) models for the series considered in this study.

Keywords: fractional integration, gross domestic product, structural breaks