Abstract
Perron (Econometrica 57(6), 1361-1401, 1989) argued that macroeconomic time series containing unit roots may be modeled as a linear deterministic trend with structural breaks at the points where (rare) exogenous shocks with permanent effects impact on the economy. The Inwood and Stengos (Explorations in Economic History 28, 274-286, 1991) application of this approach suggested that the wheat boom, WWI, and WWII resulted in permanent exogenous shocks to the Canadian economy, but the Great Depression and the oil price shocks did not. We outline some of the theoretical and historical shortcomings associated with segmented trend representations of time series and show that they can be used to support a large number of alternative (contradictory) hypotheses about the Canadian economy. We suggest that the literature on trend and difference stationary representations of macroeconomic time series provides a challenge to economic historians to clarify their views about the process of long-run economic growth.
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