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Nelson–Plosser revisited: The ACF approach

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  • Abadir, Karim M.
  • Caggiano, Giovanni
  • Talmain, Gabriel

Abstract

We detect a new stylized fact that is common to the dynamics of all macroeconomic series, including financial aggregates. Their Auto-Correlation Functions (ACFs) share a common four-parameter functional form that arises from the dynamics of a general equilibrium model with heterogeneous firms. We find that, not only does our formula fit the data better than the ACFs that arise from auto-regressive and fractionally-integrated models, but it also yields the correct shape of the ACF, thus explaining the lags with which macroeconomic variables evolve and the onset of seemingly-sudden turning points. This finding puts a premium on quick and decisive macroeconomic policy interventions at the first signs of a turning point, in contrast to gradualist approaches.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 175 (2013)
Issue (Month): 1 ()
Pages: 22-34

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Handle: RePEc:eee:econom:v:175:y:2013:i:1:p:22-34

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Web page: http://www.elsevier.com/locate/jeconom

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Cited by:
  1. Gianluca, MORETTI & Giulio, NICOLETTI, 2008. "Estimating DGSE models with long memory dynamics," Discussion Papers (ECON - Département des Sciences Economiques) 2008037, Université catholique de Louvain, Département des Sciences Economiques.
  2. Caggiano, Giovanni & Castelnuovo, Efrem, 2011. "On the dynamics of international inflation," Economics Letters, Elsevier, vol. 112(2), pages 189-191, August.
  3. Abadir, Karim & Talmain, Gabriel, 2005. "Distilling co-movements from persistent macro and financial series," Working Paper Series 0525, European Central Bank.
  4. Giovanni Caggiano & Efrem Castelnuovo, 2008. "Long Memory and Non-Linearities in International Inflation," "Marco Fanno" Working Papers 0076, Dipartimento di Scienze Economiche "Marco Fanno".
  5. Mark J. Holmes & Jesus Otero & Theodore Panagiotidis, 2013. "Modelling the behaviour of unemployment rates in the US over time and across space," Koç University-TUSIAD Economic Research Forum Working Papers 1315, Koc University-TUSIAD Economic Research Forum.
  6. Karim M. Abadir, 2010. "Is the Economic Crisis Over (and Out)?," Working Paper Series 23_10, The Rimini Centre for Economic Analysis.
  7. Karim M. Abadir & Gabriel Talmain, 2012. "Beyond Co-Integration: Modelling Co-Movements in Macro finance," Working Paper Series 25_12, The Rimini Centre for Economic Analysis.

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