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Temporal aggregation and structural inference in macroeconomics

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  • Lawrence J. Christiano
  • Martin Eichenbaum

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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Bibliographic Info

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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  1. 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.
  2. Goodfriend, Marvin, 1985. "Reinterpreting money demand regressions," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 207-241, January.
  3. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  5. Christiano, Lawrence J., 1985. "A method for estimating the timing interval in a linear econometric model, with an application to Taylor's model of staggered contracts," Journal of Economic Dynamics and Control, Elsevier, vol. 9(4), pages 363-404, December.
  6. 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.
  7. 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.
  8. 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.
  9. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  10. Alan S. Blinder & Douglas Holtz-Eakin, 1986. "Inventory Fluctuations in the United States since 1929," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 183-236 National Bureau of Economic Research, Inc.
  11. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S176-S215, June.
  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.
  13. Lawrence J. Christiano & Martin Eichenbaum, 1986. "A continuous time, general equilibrium, inventory-sales model," Working Papers 304, Federal Reserve Bank of Minneapolis.
  14. Martin Feldstein & Alan Auerbach, 1976. "Inventory Behavior in Durable-Goods Manufacturing: The Target-Adjustment Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 351-408.
  15. 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.
  16. Robert F. Engle & Ta-Chung Liu, 1972. "Effects Of Aggregation Over Time On Dynamic Characteristics Of An Econometric Model," NBER Chapters, in: Econometric Models of Cyclical Behavior, Vols. 1 and 2, pages 673-738 National Bureau of Economic Research, Inc.
  17. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  18. Lars Peter Hansen & Thomas J. Sargent, 1982. "Formulating and estimating continuous time rational expectations models," Staff Report 75, Federal Reserve Bank of Minneapolis.
  19. Alan S. Blinder, 1980. "Inventories and the Structure of Macro Models," NBER Working Papers 0515, National Bureau of Economic Research, Inc.
  20. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June.
  21. 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.
  22. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
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