Abstract:

The theme of instability or breaks in macroeconomic series have received a lot of attention over the last several decades. There are a large number of tests for structural changes or the stability of parameters. This paper reviews the traditional unit-root tests, the unit-root tests taking into account possible structural breaks, and time-varying parameter literature. Tests could lead to a bias without regard to existing breaks. Allowed for many breaks in the regression coefficients, time-varying parameter models have good power and small properties to test parameter stability (Elliott and Müller, 2006). Additionally, this paper provides a survey of the empirical studies and an application for China’s macroeconomic series and shows many macroeconomic series seem to turn out to be unstable.