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Abstract

We detect a new stylized fact about the common dynamics of macroeconomic and financial aggregates. The rate of decay of the memory (or persistence) of these series is depicted by their autocorrelation functions (ACFs), and they all fit very closely a parsimonious four-parameter functional form that we present. Not only does our formula fit the data better than the ones that arise from autoregressive models, but it also yields the correct shape of the ACF. This can help policymakers understand the lags with which an economy evolves, and its turning points.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2005_7.

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Date of creation: Jun 2005
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Handle: RePEc:gla:glaewp:2005_7

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Postal: Adam Smith Building, Glasgow G12 8RT
Phone: 0141 330 4618
Fax: 0141 330 4940
Web page: http://www.gla.ac.uk/schools/business/research/
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Find related papers by JEL classification:

• E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

This paper has been announced in the following NEP Reports:

• NEP-ALL-2005-10-22 (All new papers)
• NEP-ECM-2005-10-22 (Econometrics)
• NEP-ETS-2005-10-22 (Econometric Time Series)
• NEP-MAC-2005-10-22 (Macroeconomics)

References

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1. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
   
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7. Francis X. Diebold & Glenn D. Rudebusch, 1988. "Long memory and persistence in aggregate output," Finance and Economics Discussion Series 7, Board of Governors of the Federal Reserve System (U.S.).
   
   • Diebold, Francis X. & Rudebusch, Glenn D., 1989. "Long memory and persistence in aggregate output," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 189-209, September.
8. K Abadir & W Distaso & L Giraitis, . "Semiparametric estimation and inference for trending I(d) and related processes," Discussion Papers 05/15, Department of Economics, University of York.
9. Elena Andreou & Aris Spanos, 2003. "Statistical Adequacy and the Testing of Trend Versus Difference Stationarity," Econometric Reviews, Taylor and Francis Journals, vol. 22(3), pages 217-237.
10. Ireland, Peter N., 2001. "Technology shocks and the business cycle: On empirical investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 703-719, May.
11. Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
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    • Baillie, Richard T & Bollerslev, Tim, 1994. " Cointegration, Fractional Cointegration, and Exchange Rate Dynamics," Journal of Finance, American Finance Association, vol. 49(2), pages 737-45, June.
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Cited by:

1. Karim M. Abadir, 2010. "Is the Economic Crisis Over (and Out)?," Professional Reports 02_10, The Rimini Centre for Economic Analysis.
   
   • Karim M. Abadir, 2011. "Is the economic crisis over (and out)?," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 3(2), pages 102-108, October.
   • Karim M. Abadir, 2010. "Is the Economic Crisis Over (and Out)?," Working Paper Series 23_10, The Rimini Centre for Economic Analysis.
2. Gianluca, MORETTI & Giulio, NICOLETTI, 2008. "Estimating DGSE models with long memory dynamics," Discussion Papers (ECON - Département des Sciences Economiques) 2008037, Université catholique de Louvain, Département des Sciences Economiques.
3. Karim Abadir & Gabriel Talmain, 2005. "Distilling co-movements from persistent macro and financial series," Working Paper Series 525, European Central Bank.
4. Caggiano, Giovanni & Castelnuovo, Efrem, 2011. "On the dynamics of international inflation," Economics Letters, Elsevier, vol. 112(2), pages 189-191, August.
5. Karim M. Abadir & Gabriel Talmain, 2012. "Beyond Co-Integration: Modelling Co-Movements in Macro finance," Working Paper Series 25_12, The Rimini Centre for Economic Analysis.

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