Smooth Transitions and GDP Growth in the European Union.

In this paper we test whether GDP series in 12 European Union countries are integrated or are stationary around a deterministic component that may change gradually and smoothly between two regimes over time. We find that in two-thirds of cases there appears to be a role for modelling with deterministic functions that allow smooth transitions, in some cases standing alone, in others in conjunction with additional integrated regressors. These findings constitute a challenge to traditional approaches to modelling breaking-trend behaviour in GDP, which typically impose the condition that breaks, when present, must occur instantaneously. Copyright 2000 by Blackwell Publishers Ltd and The Victoria University of Manchester