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Linear versus Nonlinear Macroeconomies: A Statistical Test

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Author Info
Ashley, Richard A
Patterson, Douglas M

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Abstract

A statistical test based on the estimated bispectrum is presented, which can distinguish between the linear stochastic dynamics widely used in macroeconomic models and alternative nonlinear dynamic mechanisms, including both nonlinear stochastic models and nonlinear deterministic (chaotic) models. The test is applied to an aggregate stock market index and to an aggregate industrial production index. In both cases, the test easily rejects the null hypothesis of a linear stochastic generating mechanism. This result strongly suggests that nonlinear dynamics (deterministic or stochastic) should be an important feature of any empirically plausible macroeconomic model. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 30 (1989)
Issue (Month): 3 (August)
Pages: 685-704
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Handle: RePEc:ier:iecrev:v:30:y:1989:i:3:p:685-704

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  1. Elena Rusticelli & Richard A. Ashley & Estela Bee Dagum & Douglas M. Patterson, 2006. "A New Bispectral Test for Nonlinear Serial Dependence," Working Papers e06-6, Virginia Polytechnic Institute and State University, Department of Economics. [Downloadable!]
  2. William A. Barnett & A. Ronald Gallant & Melvin J. Hinich & Jochen A. Jungeilges & Daniel T. Kaplan & Mark J. Jensen, 1996. "A Single-Blind Controlled Competition among Tests for Nonlinearity and Chaos," Econometrics 9602005, EconWPA, revised 20 Sep 1996. [Downloadable!]
    Other versions:
  3. Maurice Peat & Max Stevenson, 1995. "Testing for Nonlinearities in Economic and Financial Time Series," Working Paper Series 48, School of Finance and Economics, University of Technology, Sydney. [Downloadable!]
  4. Diego Valderrama, 2002. "Statistical nonlinearities in the business cycle: a challenge for the canonical RBC model," Working Papers in Applied Economic Theory 2002-13, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  5. David Chappell, Robert M. Eldridge, 1997. "Non-linear characteristics of the sterling/European Currency Unit exchange rate: 1984–1992," European Journal of Finance, Taylor and Francis Journals, vol. 3(2), pages 159-182, June. [Downloadable!] (restricted)
  6. João Paulo Martin Faleiros & Denisard Cnéio de Oliveira Alves, 2006. "Não Linearidade Nos Ciclos De Negócios: Modelo Auto-Regressivo “Smooth Transition” Para O Índice Geral De Produção Industrial Brasileiro E Bens De Capital," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 10, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  7. Diego Valderrama, 2002. "Nonlinearities in international business cycles," Working Papers in Applied Economic Theory 2002-23, Federal Reserve Bank of San Francisco. [Downloadable!]
  8. Diego Valderrama, 2003. "Statistical Nonlinearities in the Business Cycle," Computing in Economics and Finance 2003 219, Society for Computational Economics. [Downloadable!]
  9. Cornelis A. Los & Jeyanthi Karuppiah, 2004. "Wavelet Multiresolution Analysis of High-Frequency Asian FX Rates, Summer 1997," Finance 0409037, EconWPA. [Downloadable!]
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