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Measuring Trend Output: How Useful Are the Great Ratios?

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  • Attfield, Clifford
  • Temple, Jonathan

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4796.

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Date of creation: Dec 2004
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Handle: RePEc:cpr:ceprdp:4796

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

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Cited by:
  1. 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.
  2. 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.

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