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The Dependence Structure of Macroeconomic Variables in the US

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  • Chollete, Loran

    ()
    (University of Stavanger)

  • Ning, Cathy

    (Ryerson University)

Abstract

A central role for economic policy involves reducing the incidence of systemic downturns, when key economic variables experience joint extreme events. In this paper, we empirically analyze such dependence using two approaches, correlations and copulas. We document four findings. First, linear correlations and copulas disagree substantially about the nation’s dependence structure, indicating correlation complexity in the US economy. Second, GDP exhibits linear dependence with interest rates and prices, but no extreme dependence with the latter. This is consistent with the existence of liquidity traps. Third, GDP exhibits asymmetric extreme dependence with employment, consumption and investment, with relatively greater dependence during downturns. Fourth, money is neutral, especially during extreme economic conditions.

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Bibliographic Info

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/31.

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Length: 38 pages
Date of creation: 14 Sep 2009
Date of revision:
Handle: RePEc:hhs:stavef:2009_031

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Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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Keywords: Asymmetric dependence; copula; correlation complexity; extreme event; economic policy; money neutrality; systemic downturn;

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