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Unit roots in macroeconomic time series: some critical issues

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  • Bennett T. McCallum

Abstract

This paper suggests that the relevant question concerning unit root' in the U.S. real GNP time series pertains to the relative importance of difference-stationary and trend-stationary components. Various analytical approaches indicate than an accurate answer is not obtainable with existing data. The paper next considers whether trending series should be differences prior to use in regression analysis and suggests it may not matter greatly if autocorrelated residuals are avoided. Finally, the paper argues that the absence of cointegration among variables does not imply the absence of any practically useful long-run relationship.

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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (1993)
Issue (Month): Spr ()
Pages: 13-44

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Handle: RePEc:fip:fedreq:y:1993:i:spr:p:13-44

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Keywords: Time-series analysis;

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References

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  1. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit roots in real GNP: do we know, and do we care?," Discussion Paper / Institute for Empirical Macroeconomics 18, Federal Reserve Bank of Minneapolis.
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Citations

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Cited by:
  1. Caporale, Guglielmo Maria & Gil-Alaña, Luis A., 2000. "Fractional cointegration and tests of present value models," SFB 373 Discussion Papers 2000,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Weshah A. Razzak, 2003. "Wage-Price Dynamics, the Labour Market and Deflation in Hong Kong," Working Papers 242003, Hong Kong Institute for Monetary Research.
  3. Samuel Reynard, 2007. "Maintaining Low Inflation: Money, Interest Rates, and Policy Stance," Working Papers 2007-05, Swiss National Bank.
  4. W A Razzak, 2007. "A Perspective on Unit Root and Cointegration in Applied Macroeconomics," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(1), pages 77-102.
  5. Bennett T. McCallum, 2010. "Is the Spurious Regression Problem Spurious?," NBER Working Papers 15690, National Bureau of Economic Research, Inc.
  6. Caporale, Guglielmo Maria & Hassapis, Christis & Pittis, Nikitas, 1998. "Unit roots and long-run causality: investigating the relationship between output, money and interest rates," Economic Modelling, Elsevier, vol. 15(1), pages 91-112, January.
  7. Lavan Mahadeva and Paul Robinson, 2004. "Unit Root Testing in a Central Bank," Handbooks, Centre for Central Banking Studies, Bank of England, number 22.
  8. Zsolt Becsi, 1994. "Indicators of the general price level and inflation," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 27-39.
  9. Ziesemer, Thomas, 2011. "Country terms of trade: Trends, unit roots, over-differencing, endogeneity, time dummies, and heterogeneity," MERIT Working Papers 065, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  10. Caporale, Guglielmo Maria & Gil-Alana, Luis A., 2004. "Fractional cointegration and tests of present value models," Review of Financial Economics, Elsevier, vol. 13(3), pages 245-258.
  11. Eric Parrado H., 2001. "Foreign Shocks and Monetary Policy Transmission in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 4(3), pages 29-57, December.
  12. Koushik Ghosh & Peter Saunders & Basudeb Biswas, 2000. "Trade and wage inequality: Are they related?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(3), pages 364-376, September.
  13. Sherrill Shaffer, 2002. "Conduct in a Banking Monopoly," Review of Industrial Organization, Springer, vol. 20(3), pages 221-238, May.
  14. Stamatopoulos Theodoros, 2005. "Prices and Exchange Rate of Hellenic Drachma (GRD), during 1981-," International Finance 0505013, EconWPA.
  15. McNew, Kevin, 1996. "Spatial Market Integration: Definition, Theory, And Evidence," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 25(1), April.

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