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Unit roots in real GNP: Do we know, and do we care?

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  • Christiano, Lawrence J.
  • Eichenbaum, Martin

Abstract

No, and maybe not. [additional text from author's introduction] To us, the possibility of providing a compelling case that real GMP is either trend or difference stationary seems extremely small, certainly on the basis of post-war data. This is because there is only one difference between these two types of processes and that difference is completely summarized by the answer to the question. How much should an innovation to real GMP affect the optimal forecast of real GMP into the infinite future? If the answer is zero, then real GMP is trend stationary. If the answer is not zero, then real GMP is difference stationary. The competing hypotheses have no other testable differences. Once we pose the question in this way, it seems clear that economists ought to be extremely skeptical of any argument that purports to support one view or the other. Simply put, it's hard to believe that a mere 40 years of data contain any evidence on the only experiment that is relevant.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 32 (1990)
Issue (Month): 1 (January)
Pages: 7-61

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Handle: RePEc:eee:crcspp:v:32:y:1990:i::p:7-61

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  1. Lawrence J. Christiano & Martin Eichenbaum & David Marshall, 1990. "The permanent income hypothesis revisited," Staff Report 129, Federal Reserve Bank of Minneapolis.
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  7. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1987. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  8. Christopher A. Sims, 1988. "Bayesian skepticism on unit root econometrics," Discussion Paper / Institute for Empirical Macroeconomics 3, Federal Reserve Bank of Minneapolis.
  9. Sargan, J D & Bhargava, Alok, 1983. "Maximum Likelihood Estimation of Regression Models with First Order Moving Average Errors When the Root Lies on the Unit Circle," Econometrica, Econometric Society, vol. 51(3), pages 799-820, May.
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  11. Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
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  22. Blanchard, Olivier J, 1981. "What Is Left of the Multiplier Accelerator?," American Economic Review, American Economic Association, vol. 71(2), pages 150-54, May.
  23. Kohn, R, 1979. "Asymptotic Estimation and Hypothesis Testing Results for Vector Linear Time Series Models," Econometrica, Econometric Society, vol. 47(4), pages 1005-30, July.
  24. West, Kenneth D., 1988. "The insensitivity of consumption to news about income," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 17-33, January.
  25. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
  26. Lawrence J. Christiano & Lars Ljungqvist, 1987. "Money does Granger-cause output in the bivariate output-money relation," Staff Report 108, Federal Reserve Bank of Minneapolis.
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