Fractional Integration with Bloomfield Disturbances in the Specification of Real Output in the G7 Countries

The annual structure of real output in the G7 countries is investigated in this article by means of fractional integration techniques. However, instead of using the classical ARMA specifications for describing the short-run components of the series, we use an approach due to Bloomfield (1973). The results reject the null hypothesis of a unit root in all series in favour of higher orders of integration. This indicates that the standard approach of taking first differences to obtain I(0) stationary residuals may lead to series still with a component of long memory behaviour. The possibility of a structural change corresponding to World War II is also examined, and the results confirm that fractional integration is difficult to distinguish from structural break/regime switching models.