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Modelling real GDP per capita in the USA: cointegration test

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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 USA is presented and tested. The first component of the GDP growth rate represents an economic trend and is inversely proportional to the attained level of real GDP per capita itself, with the nominator being constant through time. The second component is responsible for fluctuations around the economic 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 USA is tested for cointegration. For linearization of the problem, a predicted population time series is calculated using the original relationship. Both single year of age population time series, the measured and predicted one, are shown to be integrated of order 1. The Engel-Granger approach is applied to the difference of the measured and predicted time series and to the residuals or corresponding linear regression. Both tests show the existence of a cointegrating relation. The Johansen test results in the cointegrating rank 1. Since a 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 best RMSE is obtained in the VAR representation. Econometrically, the tests for cointegration show that the deviations of real economic growth in the USA from the economic trend, as defined by the 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

Paper provided by arXiv.org in its series Papers with number 0811.0490.

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Date of creation: Nov 2008
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Handle: RePEc:arx:papers:0811.0490

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  1. Ivan Kitov, 2007. "Real GDP Per Capita in Developed Countries," Mechonomics mechonomics5, Socionet.
  2. 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.
  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, 2007. "Exact Prediction of Inflation in the USA," Mechonomics mechonomics4, Socionet.
  5. Ivan O. Kitov, 2008. "GDP growth rate and population," Papers 0811.2125, arXiv.org.
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Cited by:
  1. Ivan O. Kitov & Oleg I. Kitov, 2010. "S&P 500 returns revisited," Papers 1004.0213, arXiv.org.
  2. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2008. "Comprehensive macro-model for the U.S. economy," MPRA Paper 9808, University Library of Munich, Germany.
  3. Ivan O. Kitov, 2010. "Modelling and predicting labor force productivity," Papers 1001.4889, arXiv.org.
  4. Ivan O. Kitov & Oleg I. Kitov, 2008. "Exact prediction of S&P 500 returns," Papers 0811.0376, arXiv.org.
  5. Kitov, Ivan, 2009. "Predicting real GDP per capita in France, Germany, New Zealand, and the UK," MPRA Paper 15503, University Library of Munich, Germany.
  6. Kitov, Ivan & Kitov, Oleg, 2012. "Real GDP per capita since 1870," MPRA Paper 39021, University Library of Munich, Germany.

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