What Do We Learn from Unit Roots in Macroeconomic Time Series?

20 Pages Posted: 1 Jan 2002 Last revised: 12 Sep 2022

See all articles by Danny Quah

Danny Quah

National University of Singapore (NUS), Lee Kuan Yew School of Public Policy, Students

Date Written: December 1987

Abstract

It is often argued that the presence of a unit root in aggregate output implies that there is no "business cycle": the economy does not return to trend following a disturbance. This paper makes this notion precise, but then develops a simple aggregative model where this relation is contradicted. In the model output both has a unit root, and displays repeated short-run fluctuations around a deterministic trend. Some summary statistical evidence is presented that suggests the phenomena described in the paper is not without empirical basis.

Suggested Citation

Quah, Danny, What Do We Learn from Unit Roots in Macroeconomic Time Series? (December 1987). NBER Working Paper No. w2450, Available at SSRN: https://ssrn.com/abstract=227104

Danny Quah (Contact Author)

National University of Singapore (NUS), Lee Kuan Yew School of Public Policy, Students ( email )

Singapore
Singapore

HOME PAGE: http://lkyspp.nus.edu.sg/faculty/quah-danny/

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