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Temporal aggregation and structural inference in macroeconomics

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Author Info
Lawrence J. Christiano
Martin Eichenbaum

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Abstract

This paper examines the quantitative importance of temporal aggregation bias in distorting parameter estimates and hypothesis tests. Our strategy is to consider two empirical examples in which temporal aggregation bias has the potential to account for results which are widely viewed as being anomalous from the perspective of particular economic models. Our first example investigates the possibility that temporal aggregation bias can lead to spurious Granger causality relationships. The quantitative importance of this possibility is examined in the context of Granger causal relations between the growth rates of money and various measures of aggregate output. Our second example investigates the possibility that temporal aggregation bias can account for the slow speeds of adjustment typically obtained with stock adjustment models. The quantitative importance of this possibility is examined in the context of a particular class of continuous and discrete time equilibrium models of inventories and sales. The different models are compared on the basis of the behavioral implications of the estimated values of the structural parameters which we obtain and their overall statistical performance. The empirical results from both examples provide support for the view that temporal aggregation bias can be quantitatively important in the sense of significantly distorting inference.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 306.

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Date of creation: 1987
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Handle: RePEc:fip:fedmwp:306

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September. [Downloadable!] (restricted)
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  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  4. Lars Peter Hansen & Thomas J. Sargent, 1980. "Methods for estimating continuous time Rational Expectations models from discrete time data," Staff Report 59, Federal Reserve Bank of Minneapolis. [Downloadable!]
  5. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
  6. Lars Peter Hansen & Thomas J. Sargent, 1982. "Formulating and estimating continuous time rational expectations models," Staff Report 75, Federal Reserve Bank of Minneapolis. [Downloadable!]
  7. Maccini, Louis J & Rossana, Robert J, 1984. "Joint Production, Quasi-Fixed Factors of Production, and Investement in Finished Goods Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 218-36, May. [Downloadable!] (restricted)
  8. Lawrence J. Christiano., 1985. "A method for estimating the timing interval in a linear econometric model, with an application to Taylor's model of staggered contracts," Staff Report 101, Federal Reserve Bank of Minneapolis. [Downloadable!]
  9. Zellner, Arnold & Montmarquette, Claude, 1971. "A Study of Some Aspects of Temporal Aggregation Problems in Econometric Analyses," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 335-42, November. [Downloadable!] (restricted)
  10. Eichenbaum, Martin S., 1984. "Rational expectations and the smoothing properties of inventories of finished goods," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 71-96, July. [Downloadable!] (restricted)
  11. Blinder, Alan S, 1981. "Inventories and the Structure of Macro Models," American Economic Review, American Economic Association, vol. 71(2), pages 11-16, May. [Downloadable!] (restricted)
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  12. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May. [Downloadable!] (restricted)
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  13. Goodfriend, Marvin, 1985. "Reinterpreting money demand regressions," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 207-241, January. [Downloadable!] (restricted)
  14. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January. [Downloadable!] (restricted)
  15. Lars Peter Hansen & Thomas J. Sargent, 1981. "Aggregation over time and the inverse optimal predictor problem for adaptive expectations in continuous time," Staff Report 74, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  16. West, Kenneth D, 1986. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 374-401, April. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  2. Claus, I., 1997. "Modelling the behaviour of U.S. Inventories: A Cointegration-Euler Approach," Working Papers 97-19, Bank of Canada. [Downloadable!]
  3. McCrorie, J.R. & Chambers, M.J., 2004. "Granger causality and the sampling of economic processes," Discussion Paper 39, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. Lawrence J. Christiano & Robert J. Vigfusson, 2001. "Maximum likelihood in the frequency domain: the importance of time-to-plan," Working Paper 0106, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  5. Chambers, M.J. & McCrorie, J.R., 2004. "Frequency domain gaussian estimation of temporally aggregated cointegrated systems," Discussion Paper 40, Tilburg University, Center for Economic Research. [Downloadable!]
  6. Morten O. Ravn & Harald Uhlig, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Charles Ka Yui Leung & Youngman Chun Fai Leong & Ida Yin Sze Chan, 2002. "TOM: Why Isn’t Price Enough?," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 91-115. [Downloadable!]
  8. James H. Stock & Mark W. Watson, 1987. "Interpreting Evidence on Money-Income Causality," NBER Working Papers 2228, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Charles Ka Yui Leung & Kelvin Siu Kei Wong & Patrick Wai Yin Cheung, 2007. "On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence," International Real Estate Review, Asian Real Estate Society, vol. 10(2), pages 66-93. [Downloadable!]
  10. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit Roots in Real GNP: Do We Know, and Do We Care?," NBER Working Papers 3130, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Richard M. Todd, 1989. "Periodic linear-quadratic methods for modeling seasonality," Staff Report 127, Federal Reserve Bank of Minneapolis. [Downloadable!]
  12. Lawrence J. Christiano & Robert J. Vigfusson, 1999. "Maximum likelihood in the frequency domain: a time to build example," Working Paper 9901, Federal Reserve Bank of Cleveland. [Downloadable!]
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  13. Donald S. Allen, 1994. "Why does inventory investment fluctuate so much during contractions?," Working Papers 1994-029, Federal Reserve Bank of St. Louis. [Downloadable!]
  14. Jeffrey A. Miron & Stephen P. Zeldes, 1989. "Seasonality, Cost Shocks, and the Production Smoothing Model of Inventories," NBER Working Papers 2360, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Richard M. Todd, 1990. "Vector autoregression evidence on monetarism: another look at the robustness debate," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 19-37. [Downloadable!]
  16. Jorda, Oscar & Marcellino, Massimiliano, 2000. "Stochastic Processes Subject to Time Scale Transformations: An Application to High-Frequency FX Data," Working Papers 00-2, University of California at Davis, Department of Economics. [Downloadable!]
    Other versions:
  17. Andrea Silvestrini & David Veredas, 2008. "Temporal aggregation of univariate and multivariate time series models: A survey," Temi di discussione (Economic working papers) 685, Bank of Italy, Economic Research Department. [Downloadable!]
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  18. Kenneth D. West, 1988. "The Insensitivity of Consumption to News About Income," NBER Working Papers 2252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Martin S. Eichenbaum, 1990. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," NBER Working Papers 2523, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Scott Schuh, 1996. "Evidence on the link between firm-level and aggregate inventory behavior," Finance and Economics Discussion Series 96-46, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  21. Richard M. Todd, 1988. "Implementing Bayesian vector autoregressions," Working Papers 384, Federal Reserve Bank of Minneapolis. [Downloadable!]
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