Empirical Economics (2004) 29:361372 DOI 10.

1007/s00181-003-0172-6

An empirical note about additive outliers and nonstationarity in Latin-American ination series
Gabriel Rodr guez
Department of Economics, University of Ottawa, P.O. Box 450 Station A, Ottawa, Ontario, K1N 6N5, Canada (e-mail: gabrielr@uottawa.ca) First revision received: August 2001/Final revision received: December 2002

Abstract. This note shows the empirical dangers of the presence of large additive outliers when testing for unit roots using standard unit root statistics. Using recent proposed procedures applied to four Latin-American ination series, I show that the unit root hypothesis cannot be rejected. Key words: Additive outliers, unit root, M-tests, ADF test, GLS detrended data, ination JEL classication: C2, C3, C5 1. Introduction When standard unit root tests such as the augmented Dickey-Fuller (Dickey and Fuller 1979; Said and Dickey 1984) or the Phillips-Perron (Phillips 1987; Phillips and Perron 1988) are applied to a set of Latin-American ination series, I obtain strong rejection of the null hypothesis of a unit root. This result does not change if I use a higher lag, which reects the existence of size distortions. Visual inspection of the four Latin-American ination series (see Fig. 1) indicates the existence of obvious outliers. In this sense, these series oer a good example of the eects of huge outliers on the properties of a time series. Moreover, when most of the research using this set of variables assumes that they are I0. This note oers an example on the empirical

I want to thank Pierre Perron for useful comments on a preliminary version of this paper. Helpful comments from an anonymous referee, and Yiagadeesen Samy are appreciated. I thank the Editor Baldev Raj for useful comments about the nal structure of this paper. Finally, I also thank Andre Lucas for helpful suggestions concerning the use of his nice computer program Robust Inference Plus Estimation (RIPE).

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Fig. 1. Monthly ination in Latin America

dangers of using standard unit root tests when there are large additive outliers. Using recent methods proposed by Vogelsang (1999) and Perron and Rodr guez (2003), our results show a clear evidence of the presence of additive outliers in all of the four Latin-American ination series analyzed. Most of these additive outliers are associated to the dates of application of stabilization programs in previous years, with the goal of stopping high ination episodes. Application of the ADF statistic corrected for the presence of additive outliers conrms stationarity for the ination series of Bolivia and Chile. However, the ination series for Argentina and Peru are nonstationary. Of course, there are many other procedures to identify outliers, for example, those proposed in Tsay (1986), Chang et al. (1988), Shin et al. (1996), Chen and Liu (1993) and Gomez and Maravall (1992a, b). Another interesting approach is proposed by Lucas (1995a, b), and Hoek et al. (1995). At the end of this paper, I present a brief comparison of our results with those obtained using methods proposed by Lucas (1995a, b). This paper is organized as follows. Section 2 presents the model, discusses the issue of outlier detection and briey revises the two methods proposed by Perron and Rodr guez (2003) to detect for additive outliers. In Sect. 3, I describe the ADF test corrected for the presence of additive outliers and I

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present the results of the empirical analysis. Section 4 concludes. Some details about the sources of the data are provided in the Appendix. 2. The issue of outlier detection and testing for unit roots with additive outliers The issue of outlier detection in the unit root framework is the approach taken by Vogelsang (1999) and Perron and Rodr guez (2003). The datagenerating process entertained is of the following general form: m X dj DTao;j t ut 1 yt dt
j1

where DTao;j t 1 if t Tao;j and 0 otherwise. This permits the presence of m additive outliers occurring at dates Tao;j j 1; . . . ; m: The term dt species the deterministic components. In most cases, dt l if the series is nontrending or dt l bt if the series is trending. The noise function is integrated of order one, i.e, ut ut1 vt ; where vt is a stationary process. The detection procedure, suggested by Vogelsang (1999), starts with the following regression estimated by OLS (if necessary, a time trend can also be included), ^ dDTao t ut ^ yt l ^ 2 where DTao t 1 if t Tao and 0 otherwise. Let t^ Tao denote the t-statistic d for testing d 0 in (2). Following Chen and Liu (1993), the presence of an additive outlier can be tested using s supTao j t^ Tao jtd Ta0 j: Assuming that ^ d k Tao =T remains xed as T grows, Vogelsang (1999) showed that as T ! 1; the limiting distribution of t^ Tao is non-standard1 . In Perron and Rodr guez d (2003), asymptotic critical values for s were obtained using simulations. When there is an intercept in (2), the critical values are 3.53, 3.11 and 2.92 at the 1, 5 and 10% signicance levels respectively. If a time trend is also included in (2), the corresponding critical values are 3.73, 3.31 and 3.12. The outlier detection procedure recommended by Vogelsang (1999) is implemented as follows. First, the s statistic is computed for the entire series and s is compared to the appropriate critical value. If s exceeds the critical ^ value, then an outlier is detected at date Tao arg maxTao jt^ Tao j: The outlier d and the corresponding row of the regression is dropped and (2) is again estimated and tested for the presence of another outlier. This continues until the test shows a non-rejection. Unfortunately, the original procedure of Vogelsang (1999) has severe size distortions when applied in an iterative fashion to search for additive outliers. The reason for this is that the limiting distribution of the s test is only valid in the rst step of the iteration as specied in Theorem 1 of Perron and Rodr guez (2003). In subsequent steps, the asymptotic critical values used need to be modied. In general, the theorem species that the correct critical

R1 1 More precisely, t^ Tao ) H k W k= 0 W r2 dr1=2 ; where W k denotes a demeaned d standard Wiener process. If (2) also includes a time trend, W k will denote a detrended Wiener process. Furthermore, from the continuous mapping theorem it follows that, s ) supk20;1 jHkj  H : This distribution is invariant with respect to any nuisance parameters, including the correlation structure of the noise function.

364 Table 1. Finite critical values for sd Signicance zt f1g zt f1; tg

G. Rodr guez

T 100 T 200 T 250 T 350 T 100 T 200 T 250 T 350 1.0% 2.5% 5.0% 10.0% 4.13 3.86 3.65 3.44 4.15 3.95 3.78 3.56 4.22 3.95 3.79 3.61 4.27 4.04 3.86 3.66 4.11 3.83 3.64 3.42 4.14 3.94 3.77 3.55 4.21 3.94 3.78 3.60 4.27 4.04 3.85 3.66

values to be used in the full iterative procedure will be ai , where a is the level of signicance and i is the number of the step in the full iterative procedure. I shall denote by sc the iterative outlier detection procedure that uses the correct (and dierent) asymptotic critical values at dierent steps: In the empirical applications, I will use critical values corresponding to the 5.0% signicance level. These critical values are 2.989, 3.689, 4.294 and 4.425 for the rst, second, third and fourth steps in the full iterative procedure. A problem with the last described method is that this procedure is not powerful unless the size of the outlier is very large2 . Perron and Rodr guez (2003) have proposed a more powerful iterative strategy using tests based on rst-dierences of the data. Consider data generated by (1) with dt l, and a single outlier occurring at date Tao with magnitude d. Then, Dyt dDTao t DTao t1 vt ; 3 where DTao t 1, if t Tao (0, otherwise) and DTao t1 1; if t Tao 1 (0, otherwise). If the data are trending, a constant should be included. In this case I am are interested in sd supTao jt^ Tao j; where t^ Tao d d ^ ^ ^ d=2Ru 0 Ru 1 and Ru j is the autocovariance function of ut at delay j.3 To detect multiple outliers, I can follow a strategy similar to that suggested by Vogelsang (1999), by dropping the observation labelled as an outlier before proceeding to the next step. The important feature is that, unlike for the case of tests based on levels (as the s statistic of Vogelsang), the limit distribution of the test sd is the same as each step of the iterations when dealing with multiple outliers.4 Following standard practice in the literature, Perron and Rodr guez (2003) have tabulated critical values assuming i:i:d: normal errors for T 100 and T 200. Given that I have some longer time series, I have simulated critical values for T 250 and T 350 for the two possibilities of deterministic components (zt f1g and zt f1; tg) and 5,000 replications were used. The percentage points of the test sd are presented in Table 1, which also includes the critical values for T 100 and T 200.

Simulation evidence supporting this issue can be found in Perron and Rodr guez (2003). P ^ ^ Where Ru j T 1 T j vt vtj with vt the least-squares residuals obtained from regression (3). t1 ^ ^ ^u j is a consistent estimate of Ru j. Then, R 4 The disadvantage of this procedure, compared to that based on the level of the data, is that the limiting distribution depends on the specic distribution of the errors vt , though not on the presence of serial correlation and heteroskedasticity. This problem is exactly the same as that for nding outliers in stationary time series.
3

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365

Two suggestions made in the literature for testing for unit roots in the presence of additive outliers are using robust unit root tests for the presence of strong negative moving average correlation in residuals (see Vogelsang 1999) and applying an ADF test corrected for dummy variables associated to the dates of the additive outliers found in a preliminary step (see Franses and Haldrup 1994; Vogelsang 1999). Robust tests for the presence of strong negative moving average autocorrelation are the so called M-tests, originally proposed by Stock (1999) and further analyzed by Perron and Ng (1996). Recently, Ng and Perron (2000) have shown that these tests perform better in terms of power (and size) when GLS detrended data is used. These tests (M GLS ) are dened by: !1 T X 1 2 2 2 2 ~ ~ MZa T yT s 2T 4 yt
t1 T X t1 T X t1

!1=2 ~ yt2 =s2 !1=2 ~ yt2 6 5

MSB

MZt

~2 T 1 yT

s 4s T

^ ^ ~ where yt yt wzt , w is the estimator that minimizes S w PT a a 2 with yta y1 ; 1 aLyt , za z1 ; 1 aLzt , for t t t1 yt wzt 1; 2; 3; :::; T with c as a non centrality parameter measuring departures from the null hypothesis. As recommended by Elliott, Rothenberg and Stock (1996), this parameter is equal to 7:0 or 13:5 when only an intercept or an intercept and a time trend are included in the regression, respectively. The term s2 is an autoregressive estimate of (2p times) the ^ spectral density P frequency zeroP vt , dened as s2 s2 =1 b12 , at of gk ^ ^2 ; b1 k bj and f^tk gare obtained from the g where s2 T 1 T gtk ^ gk tk1 j1 autoregression:5 ~ D~t b0 yt1 y
k X j1

bj D~tj gtk y

Using an ADF test corrected for detected additive outliers is equivalent to using the t-statistic for testing that a 1 in the following regression yt l ayt1
k1 X j0

dj DTao;j tj

k X i0

di Dyti et

where DTao;j t 1 if t Tao;j and 0 otherwise, with Tao;j j 1; 2; :::; m being the dates of the outliers identied. Notice that k 2 one-time dummy variables have to be included in (8) to remove all possible inuences of the additive outliers.

The advantages of using this autoregressve-based spectral density estimator over the more traditional kernel-based method are discussed in Perron and Ng (1998).

366 Table 2. Size of ADF test, AR1 errors (lag length xed to one) d1 0; d2 0; d3 0; d4 0 nc q 0:80 Without with total Without with total without with total Without with total Without with total 0.052 0.000 0.052 0.052 0.000 0.052 0.057 0.000 0.057 0.061 0.000 0.061 0.060 0.000 0.060 sc 0.031 0.024 0.055 0.027 0.028 0.055 0.031 0.023 0.054 0.038 0.017 0.055 sd 0.050 0.002 0.052 0.046 0.005 0.051 0.055 0.002 0.057 0.059 0.001 0.060 d1 5; d2 3; d1 2; d2 2 nc 0.169 0.000 0.169 0.130 0.000 0.130 0.070 0.000 0.070 0.034 0.000 0.034 sc 0.043 0.081 0.124 0.038 0.062 0.100 0.029 0.039 0.068 0.017 0.015 0.032 sd 0.100 0.033 0.133 0.008 0.070 0.078 0.000 0.057 0.057 0.000 0.045 0.045

G. Rodr guez

d1 10; d2 5; d1 5; d2 5 nc 0.502 0.000 0.502 0.380 0.000 0.380 0.198 0.000 0.198 0.054 0.000 0.054 sc 0.006 0.252 0.258 0.009 0.203 0.212 0.017 0.103 0.120 0.011 0.032 0.043 sd 0.012 0.175 0.187 0.000 0.055 0.055 0.000 0.051 0.051 0.000 0.044 0.044

q 0:40

q 0:00

q 0:40

0.054 0.058 0.027 0.021 0.000 0.036 0.028 0.000 0.007 0.002 0.000 0.006 0.039 0.000 0.008 0.054 0.061 0.060 0.027 0.027 0.039 0.036 0.036 0.054 P The Data generating process is yt 4 dj DTao;j t ut ; with ut ut1 vt and vt qvt1 t : j1 The column denoted by nc is the size of the ADF test with no correction for the presence of outliers. The columns denoted by sc and sd is the size of the ADF corrected for outliers using the procedure sc and sd , respectively. The row denoted by without shows the size of the ADF test when no correction for outliers has been done. The row denoted by with shows the size of the ADF test when a correction for outliers has been done. Finally, the row denoted by total is simply the sum of the other two rows.

q 0:80

3. Empirical evidence 3.1. Size and power of ADF test corrected for additive outliers Simulations on size and power of the ADF statistic without and with correction for outliers were performed6 . Overall, both procedures (sc and sd ) work well correcting for the presence of outliers. However, sd enables us to have better size properties of the ADF unit root test with an exact size closer to the nominal size. It is valid if lag length is xed or chosen following the sequential t-sig method proposed by Campbell and Perron (1991)7 . One possible drawback with the sequential t-sig method is that it has a tendency to choose a high lag when this structure is not necessary and then articially reduces the size distortions. Results xing lag to one with AR1 disturbances are shown in Table 2. With q 0:40, sc and sd

Complete details and tables from these simulations are available upon request. For example, when we have moving average innovations with h 0:80 and large additive outliers, the size of the ADF test without correction for additive outliers is 0.743. The other two methods have size equal to 0.460 and 0.392, respectively. When h 0:0, the three methods have 0.133, 0.087 and 0.041, respectively.
7

An empirical note about additive outliers and nonstationarity

367

have size equal to 0.212 and 0.055, respectively, compared to the case where these procedures have size equal to 0.101 and 0.046 using the sequential t-sig method. 3.2. Ination in Latin American countries In the past few years, most Latin American countries have experimented with dierent stabilization programs to stop high ination episodes. Intervention of this kind, in most of these cases, has introduced additive outliers in the evolution of their ination series. Hence, the Latin American ination series oer a good example of the presence of additive outliers in a possible nonstationary time series. In this section, I consider four Latin American ination series. The selected countries are Argentina, Bolivia, Chile and Peru. The periods of high ination in Argentina and Peru were located between 1985 and 1990, where the most important stabilization programs were applied. In the case of Argentina, the most known governmental plans were the Austral Program (June 1985), the program of February of 1987, the Austral II Program (October 1987), The Spring Program (August 1988), the BB Program (1989), The Bonex Program (January 1990) and the Cavallos Program (March 1991). The dates in parenthesis correspond to the start date of the programs. In the Peruvian case, I can mention two principal stabilization programs. These are the Salinas Program (September 1988) and the Fujimoris Program (JulyAugust 1990). In the Bolivian case, the episode of high ination was in the middle of 1980. Many small stabilization programs were applied during the period between 1982 and 1984 but it was the program applied in August 1985 which stopped the high ination. Finally, high ination in Chile was located around 1975. Diverse programs were applied between 1975 and 1977 until the shock plan applied at the end of 1977 until 1979. Monthly data is considered. For Argentina, the span goes from January 1979 until March 1999. For Bolivia and Peru, the span goes from January 1979 until May 2000. For Chile, the span goes from January 1970 until May 2000. These periods were selected considering two criteria. The rst criteria is to include all or the principal stabilization programs applied in these countries. Stabilization in Chile was made in the 1970s and it is the reason why its span is dierent from the other countries. The second criteria is availability of the data. The four series are presented in Fig. 1. Visual analysis indicates clear presence of additive outliers (associated with the dierent stabilization programs mentioned above). In dierent empirical applications, these series are frequently modelled as I0 processes, and this consideration is based on the application of standard unit root tests such as ADF or PhillipsPerron tests. Because there are very large additive outliers, I think that this result is incorrect since these additive outliers introduce a strong negative moving average component which implies a strong rejection of the null hypothesis of a unit root. Then, I postulate that when correction for these additive outliers is taken into account, the rejection of the unit root hypothesis is no longer possible or in some cases, the rejection is possible but is weaker.

368 Table 3. ADF and Phillips-Perron tests (Regression includes only a constant) Country Argentina Bolivia Chile Peru
a, b, c, d,

G. Rodr guez

Sample 1979:011999:03 1979:012000:05 1970:012000:05 1979:012000:05

kmax 19 19 23 19

t^ a )2:809 )2:932c )2:050 )5:300a

d

^ a 0.796 0.822 0.881 0.512

k 15 10 21 3

Zt )7:205 )8:83a )16:53a )12:32a

a

k 1 10 21 3

Denotes signicance levels at 1.0%, 2.5%, 5.0% and 10.0%, respectively.

GLS Table 4. M GLS , PT and ADF GLS tests (Deterministic components zt f1g , c 7:0)

Country Argentina Bolivia Chile Peru

a, b, c, d

Sample 1979:011999:03 1979:012000:05 1970:012000:05 1979:012000:05

kmax 19 19 23 19

MZa )30:96 )18:87a )9:85b )40:17a

a

MSB 0.126 0.163a 0.224b 0.111a

a

MZt )3:922 )3:071a )2:208a )4:480a

a

PT 0.834 1:367a 2:519b 0.609a

a

ADF )2:748 )2:734a )2:052c )5:283a

a

b a

0.804 15 0.846 10 0.880 21 0.525 3

Denotes signicance levels at 1.0%, 2.5%, 5.0% and 10.0%, respectively. Critical values for M GLS tests were obtained from Ng and Perron (2001). Critical values for the ADF GLS test are equivalent to the case where no deterministic components are included in the regression as was shown by Elliott et al. (1996).

3.3. Evidence from standard unit root tests Here, I apply standard unit root tests to verify the existence of a unit root in the ination time series. In the end, I also consider the application of M GLS tests, which are considered as robust unit root tests for the presence of negative moving average serial correlation. The lag length is selected using the sequential t-sig procedure. For Tables 3 h i and 4, I use kmax int 12 T =1001=2 . Most of the results go in the same direction, that is, they lead to a strong rejection of the unit root hypothesis in favor of stationarity. Notice that these results are found although a large lag is used. A similar comment can be mentioned when unit root tests using GLS detrended data are applied (see Table 4). 3.4. Detecting for additive outliers A following step is to search for additive outliers and then to verify our visual inspection from Fig. 1. Since I use monthly data, I preclude the possibility of nding an excessive number of outliers using a critical value at 1.0% when the procedure based on the rst dierence of the data ( sd ) is used. Critical values at 5.0% are used when I use the procedure based on dierent critical values at dierent steps of the iterations (sc ). The evidence (see the fourth column in Tables 5 and 6) shows that there are signicant numbers of outliers in all ination time series. As I mentioned in the previous section, sd is more powerful and the results reveal this fact. Both procedures are able to detect principal outliers as the observations associated directly to the dates of application of stabilization programs (and adjacent observations) to stop high ination episodes.

An empirical note about additive outliers and nonstationarity Table 5. ADF corrected for additive outliers using sd (Deterministic components zt f1g) Country Argentina Bolivia Chile Peru

369

Sample 1979:011999:03 1979:012000:05 1970:012000:05 1979:012000:05

kmax 15 15 17 15

Outliers 12 30 19 10

t^ a )0.312 )4:570a )4:683a )0:652

b a 0.991 0.399 0.830 0.968

k 4 5 13 10

Additive outliers were detected using 1.0% critical value.

Table 6. ADF corrected for additive outliers using sc (Deterministic components zt f1g) Country Argentina Bolivia Chile Peru Sample 1979:011999:03 1979:012000:05 1970:012000:05 1979:012000:05 kmax 15 15 17 15 Outliers 4 4 4 4 t^ a 0.128 4.049 )7:139a 0.151 b a 1.006 1.289 0.852 1.009 k 14 12 11 13

3.5. Evidence from ADF test corrected for additive outliers A nal step is the application of the ADF test using dummy variables to incorporate additive outliers found in the fourth column of Tables 5 and 6. In this case, I use a kmax int 12 T =1001=4 . Results for the procedure sd are presented in Table 5. According to these results, the ination series for Argentina and Peru can be considered as I1 processes. In the cases of Bolivia and Chile, ination can be considered as an I0 process. Notice that a small length was selected in the case of Bolivia and some doubt can remain about this rejection. However, when I impose a kmin 6 or a kmin 12, the t-statistics are 3:69 and 2:62, which are signicant at the 1.0% and the 10.0% levels, respectively. Results using the procedure sc are presented in Table 6. I obtain similar results as in Table 5 except for Bolivia which now shows evidence of an explosive root. Although the result is dierent from Table 5, I can reject the unit root hypothesis, which is important here. One comment about the number of outliers is of note here. Unfortunately, I were able to use only four critical values (using the procedure sc ) which correspond to the rst, second, third and fourth steps in the full iterative procedure to search for additive outliers. The reason for this limited number of critical values is the fact that each time I need critical values very far in the tail (see Perron and Rodr guez 2003). A possible ad hoc suggestion is to use the critical value corresponding to the fourth step for all subsequent steps. I have done this iterating until 36 steps. In all cases (not reported here), I nd 36 outliers and no dierent results were found with respect to those shown in Table 6. In another approach, Lucas (1995a,b) proposes the use of robust estimates for the presence of outliers. It is not a sequential procedure which may be an advantage in some cases where identication of the dates of the outliers are not relevant. However, in most cases, researchers need to know the dates of the outliers. This is our case because among other reasons, dates of the outliers allow us to conrm visual analysis, and from a macroeconomic perspective they allow us to identify which phenomena are related to these dates.

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When dates of the outliers are needed, the approaches suggested by Lucas (1995a,b) need also the specication of a critical value generally located between 3 and 4. In this case, our results verify that the approaches of Lucas (1995a,b) suer from the same problem as Vogelsang (1999) because an excessive number of observations are identied as outliers. However, the estimate related to the autoregressive coecient in the ADF regression can be considered robust to the presence of outliers, which is the claim of Lucas (1995a). He uses the so called high breakdown point (HBP ) estimators introduced initially by Rousseeuw and Leroy (1987). There are several HBP estimators proposed in the literature. Here I use the S estimators (Rousseeuw and Yohai 1984), the MM estimators (Yohai, 1987)8 . On the other hand, Lucas (1995b) proposes a statistic for unit root testing based on M estimators (Hampel et al. 1986; Huber 1981). This type of estimators is known to have a certain degree of insensitivity to outliers. In this approach, the estimation of a particular function w: is needed. Details and assumptions to be satised for this function are mentioned in Lucas (1995b). Here I use two particular options for w:, which are the bi-square w: function and the Huber w: function (Huber 1981); see Lucas (1995b) for further details. In applying the procedures, a similar lag length as in the sd or sc was specied. For the S estimator, 10000 replications were used in specifying the random sampler. While many outliers are found for each ination time series, overall, the results using HBP and M estimators conrm our results. In the case of Argentina, the null hypothesis of a unit root is not rejected using MM estimator (t^ 0:31). The M estimators support the same conclusion (t^ 0:83 a a and t^ 1:27). Only the S estimator conrms the results obtained from OLS, a that is, a reject of the null hypothesis (t^ 7:49). However, it is known in the a literature that this type of estimator is biased when there are outliers in the explanatory variables, which is frequently called leverage eects. In the case of Bolivia, all procedures support a strong reject of the null hypothesis (t^ 15:41 using the MM estimator; t^ 65:37 using the S estimator; and a a t^ 17:96 using the M estimator with a bi-squared w: function). The only a exception is the M estimator when a Huber w: function is used (t^ 1:11). a For Chilean ination, I obtain in all cases rejections of the null hypothesis of a unit root (t^ 4:09 using the MM estimator; t^ 7:83 using the S estimator; a a and t^ 4:91 using the M estimator with a bi-squared w: function). The M a estimator using a Huber w: function is almost borderline at the 10.0% critical value. Finally, ination in Peru is stationary according to the results obtained from MM and S estimators (t^ 3:25 and t^ 7:28; respectively). However, a a the M estimators (in both w: function versions) indicate that ination is nonstationary (t^ 1:32 and 0:73, respectively). a 4. Conclusions Empirical dangers of applying standard unit root tests have been illustrated using four Latin-American ination time series. In fact, application of M tests

8 Results obtained using the Least Median of Squares (LMS) suggested by Rousseeuw (1984) are not presented given that standard errors are not available. It is because this type of estimator has poorer aymptotic properties. See Lucas (1995a, b).

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and ADF test using GLS detrended data have shown a strong reject of the unit root hypothesis. Since the size of the additive outliers presented in these time series are very large, I need to use an ADF corrected for dummy variables associated to the position of these additive outliers. Application of this test indicated that ination series for Argentina and Peru can be considered as I1 processes. For Bolivia and Chile, these time series can be considered as I0 processes. Our results were compared with those obtained using the approaches suggested by Lucas (1995a,b). Overall, I obtain similar results using his procedures. While procedures suggested in Lucas (1995a,b) are not sequential, which is an advantage, they suer from the same drawback as in Vogelsang (1999) which is the identication of a big number of observations as outliers. When the researcher is only interested in a robust estimate of a specic coecient, it may be a good strategy to apply this type of procedure. However, when identication of the dates of occurrence of the outliers is important, I think that the procedure of Perron and Rodr guez (2003) is advisable. In terms of future research, a more complete comparison between both approaches using simulation evidence would be useful. Appendix: The data The source of the data for Peru is the National Institute of Statistics and the Central Bank of Peru where Guillermo Diaz provided the relevant data. For Chile, the source is the equivalent National Institute of Statistics. It was Rafael Herrada who provided the necessary data while he was completing his Masters Program at the Catholic University of Chile. For Bolivia, the data until December 1998 was kindly provided by Wilfredo Sillerico Galvez, from the Central Bank of Bolivia. Data was completed from information published on the Web page of the Central Bank of Bolivia. Ination for the period January 1979 until December 1996 for Argentina is a sub-sample of the total sample used by Baillie and Chung (1996). Baillie kindly provided me with the data. The period until March 1999 was completed from information published on the Web page of the National Institute of Statistics of Argentina. References
Campbell JY, Perron P (1991) Pitfalls and opportunities: what macroeconomists should know about unit roots. In: Blanchard OJ, Fisher S (eds) NBER Macroeconomic Annual, Vol. 6:141201 Chang I, Tiao GC, Chen C (1988) Estimation of time series parameters in the presence of outliers. Technometrics 30:193204 Chen C, Liu L (1993) Joint estimation of model parameters and outlier eects in time series. Journal of the American Statistical Association 74:427431 Dickey DA, Fuller WA (1979) Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association 74:427431 Elliott G, Rothenberg T, Stock JH (1996) Ecient tests for an autoregressive unit root. Econometrica 64:813836 Franses PH, Haldrup N (1994) The eects of additive outliers on tests for unit roots and cointegration. Journal of Business & Economic Statistics 12:471478

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