Deterministic vs. Stochastic Trend in U.S. Gnp, Yet Again

19 Pages Posted: 14 May 1998 Last revised: 25 Dec 2022

See all articles by Francis X. Diebold

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Abdelhak S. Senhadji

International Monetary Fund (IMF)

Date Written: March 1996

Abstract

A sleepy consensus has emerged that U.S. GNP data are uninformative as to whether trend is better described as deterministic or stochastic. Although the distinction is not critical in some contexts, it is important for point forecasting, because the two models imply very different long-run dynamics and hence different long-run forecasts. We argue that, even for the famously recalcitrant GNP series, unit root tests over long spans can be informative. Our results make clear that uncritical repetition of the `we don't know, and we don't care' mantra is just as scientifically irresponsible as blind adoption of the view that `all macroeconomic series are difference-stationary,' or the view that `all macroeconomic series are trend-stationary.' There is simply no substitute for serious, case- by-case analysis.

Suggested Citation

Diebold, Francis X. and Senhadji, Abdelhak S., Deterministic vs. Stochastic Trend in U.S. Gnp, Yet Again (March 1996). NBER Working Paper No. w5481, Available at SSRN: https://ssrn.com/abstract=3136

Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
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215-898-1507 (Phone)
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HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

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Abdelhak S. Senhadji

International Monetary Fund (IMF)

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Washington, DC 20431
United States

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