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Modelling Real Gdp Per Capita In The Usa:Cointegration Tests

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  • Ivan O. KITOV
  • Oleg I. KITOV
  • Svetlana A. DOLINSKAYA

Abstract

A two-component model for the evolution of real GDP per capita in the United States is presented and tested. First component of the growth rate of GDP represents the growth trend and is inversely proportional to the attained level of real GDP per capita, with the nominator being constant through time. Second component is responsible for the fluctuations around the growth trend and is defined as a half of the growth rate of the number of 9-year-olds. This nonlinear relationship between the growth rate of real GDP per capita and the number of 9-year-olds in the US is tested for cointegration. For linearization of the problem, the population time series is predicted using the relationship. Both single year of age population time series, the measured and predicted one, are shown to be nonstationary and integrated of order 1 � the original series have unit roots and their first differences have no unit root. The Engel-Granger procedure is applied to the difference of the measured and predicted time series and to the residuals of a linear regression. Both tests show the existence of a cointegrating relation. The Johansen test results in the cointegrating rank 1. Since the cointegrating relation between the measured and predicted number of 9-year-olds does exist, the VAR, VECM, and linear regression are used in estimation of the goodness of fit and root mean-square errors, (RMSE). The highest R2=0.95 and the lowermost RMSE is obtained in the VAR representation. The VECM provides consistent, statistically reliable, and significant estimates of the slope in the cointegrating relation. Econometrically, the tests for cointegration show that the deviations of real economic growth in the US from the growth trend, as defined by constant annual increment of real per capita GDP, are driven by the change in the number of 9-year-olds.

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Bibliographic Info

Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 4 (2009)
Issue (Month): 1(7)_ Spring 2009 ()
Pages:

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Handle: RePEc:ush:jaessh:v:4:y:2009:i:1(7)_spring2009:52

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Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14
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Related research

Keywords: real GDP per capita; population estimates; cointegration; VAR; VECM; USA;

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References

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  1. Ivan O. Kitov, 2008. "GDP growth rate and population," Papers 0811.2125, arXiv.org.
  2. Ivan Kitov, 2007. "Real GDP Per Capita in Developed Countries," Mechonomics mechonomics5, Socionet.
  3. Carl Chiarella & S. Gao, 2002. "Type I Spurious Regression in Econometrics," Working Paper Series 114, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  4. Ivan, Kitov, 2006. "Exact prediction of inflation in the USA," MPRA Paper 2735, University Library of Munich, Germany.
  5. Ivan O. Kitov, 2005. "Modelling the overall personal income distribution in the USA from 1994 to 2002," Working Papers 07, ECINEQ, Society for the Study of Economic Inequality.
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Cited by:
  1. Kitov, Ivan & Kitov, Oleg, 2009. "Modelling and predicting labor force productivity," MPRA Paper 15152, University Library of Munich, Germany.
  2. Ivan Kitov & Oleg Kitov, 2012. "Real GDP per capita since 1870," Papers 1205.5671, arXiv.org.
  3. Kitov, Ivan & Kitov, Oleg, 2010. "S&P 500 returns revisited," MPRA Paper 21733, University Library of Munich, Germany.
  4. Kitov, Ivan, 2009. "Predicting real GDP per capita in France, Germany, New Zealand, and the UK," MPRA Paper 15503, University Library of Munich, Germany.
  5. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2008. "Comprehensive macro-model for the U.S. economy," MPRA Paper 9808, University Library of Munich, Germany.
  6. Ivan O. Kitov & Oleg I. Kitov, 2008. "Exact prediction of S&P 500 returns," Papers 0811.0376, arXiv.org.

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