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Measuring trend output: how useful are the Great Ratios?

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  • Cliff L.F. Attfield
  • Jonathan R.W. Temple

Abstract

Standard macroeconomic models suggest that the 'great ratios' of consumption to output and investment to output should be stationary. The joint behaviour of consumption, investment and output can then be used to measure trend output. We adopt this approach for the USA and UK, and find support for stationarity of the great ratios when structural breaks are taken into account. From the estimated vector error correction models, we extract multivariate estimates of the permanent component in output, and comment on trend growth in the 1980s and the New Economy boom of the 1990s.

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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 03/555.

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Length: 44 pages
Date of creation: Oct 2003
Date of revision:
Publication status: Published under different title in the Journal of Macroeconomics, 2010.
Handle: RePEc:bri:uobdis:03/555

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Keywords: Trend output; great ratios; structural breaks; permanent components; New Economy;

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Cited by:
  1. M.S.Rafiq, 2006. "Great Ratios, Balanced Growth and Stochastic Trends: Evidence for the Euro Area," Discussion Paper Series 2006_20, Department of Economics, Loughborough University.
  2. Carsten Trenkler & Pentti Saikkonen & Helmut Lütkepohl, 2008. "Testing for the Cointegrating Rank of a VAR Process with Level Shift and Trend Break," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(2), pages 331-358, 03.
  3. M.S.Rafiq, 2006. "Business Cycle Moderation - Good Policies or Good Luck: Evidence and Explanations for the Euro Area," Discussion Paper Series 2006_21, Department of Economics, Loughborough University.
  4. Karel Mertens, 2006. "How the Removal of Deposit Rate Ceilings Has Changed Monetary Transmission in the US: Theory and Evidence," Economics Working Papers ECO2006/34, European University Institute.

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