What Do We Learn from Unit Roots in Macroeconomic Time Series?
20 Pages Posted: 1 Jan 2002 Last revised: 12 Sep 2022
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: 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
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