(Fractional) beta convergence
AbstractUnit roots in output, an exponential 2 per cent rate of convergence and no change in the underlying dynamics of output seem to be three stylized facts that cannot go together. This paper extends the Solow-Swan growth model allowing for cross-sectional heterogeneity. In this framework, aggregate shocks might vanish at a hyperbolic rather than at an exponential rate. This implies that the level of output can exhibit long memory and that standard tests fail to reject the null of a unit root despite mean reversion. Exploiting secular time series properties GDP, we conclude that traditional approaches to test for uniform (conditional and unconditional) convergence suit first step approximation. We show both theoretically and empirically how the uniform 2 per cent rate of convergence repeatedly found in the empirical literature is the outcome of an underlying parameter of fractional integration strictly between 1/2 and 1. This is consistent with both time series and cross-sectional evidence recently produced.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 45 (2000)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Michelacci, C. & Zaffaroni, P., 2000. "(Fractional) Beta Convergence," Papers 383, Banca Italia - Servizio di Studi.
- Michelacci, C. & Zaffaroni, P., 1998. "(Fractional) Beta Convergence," Papers 9803, Centro de Estudios Monetarios Y Financieros-.
- Claudio Michelacci & Paolo Zaffaroni, 2000. "(Fractional) Beta Convergence," Temi di discussione (Economic working papers) 383, Bank of Italy, Economic Research and International Relations Area.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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