Publication Date: October 1991
Nonstationarity is certainly one of the most dominant and enduring characteristics of macroeconomic and ﬁnancial time series. It therefore seems appropriate that this feature of the data be seriously addressed both in econometric methodology and in empirical practice. However, until recently this has not been the case. Before 1980, it was standard empirical practice in econometrics to treat observed trends as simple deterministic functions of time. Nelson-Plosser (1982) challenged this practice and showed that observed trends are better modeled if one allows for stochastic trends. Since their work there has been a continuing reappraisal of trend behavior in economic methods of nonstationary time series. This essay has touched only a part of this large research ﬁeld and traced only the main ideas involved in unit root modeling and statistical testing.
Nonstationarity, time series
JEL Classification Codes: C22, C51