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Temporal Aggregation and Structural Inference in Macroeconomics

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  • Lawrence J. Christiano
  • Martin S. 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 equilibriurn 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 National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0060.

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Date of creation: Sep 1986
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Publication status: published as Eichenbaum, Martin S. and L. J. Christiano. "Temporal Aggregation and Structural Inference in Macroeconomics," Carnegie-Rochester Conference Series on Public Policy, Vol. 26, Spring 1987, pp. 63-130.
Handle: RePEc:nbr:nberte:0060

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  1. Alan S. Blinder & Douglas Holtz-Eakin, 1984. "Inventory Fluctuations in the United States Since 1929," NBER Working Papers 1371, National Bureau of Economic Research, Inc.
  2. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  3. Lars Peter Hansen & Thomas J. Sargent, 1982. "Formulating and estimating continuous time rational expectations models," Staff Report, Federal Reserve Bank of Minneapolis 75, Federal Reserve Bank of Minneapolis.
  4. 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.
  5. Lawrence J. Christiano & Martin Eichenbaum, 1986. "A continuous time, general equilibrium, inventory-sales model," Working Papers, Federal Reserve Bank of Minneapolis 304, Federal Reserve Bank of Minneapolis.
  6. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 39(5), pages 659-81, September.
  7. Blinder, Alan S, 1981. "Inventories and the Structure of Macro Models," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 11-16, May.
  8. Kenneth D. West, 1985. "A Variance Bounds Test of the Linear Quardractic Inventory Model," NBER Working Papers 1581, National Bureau of Economic Research, Inc.
  9. Hansen, Lars Peter & Sargent, Thomas J, 1983. "Aggregation over Time and the Inverse Optimal Predictor Problem for Adaptive Expectations in Conginuous Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 1-20, February.
  10. 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.
  11. Eichenbaum, Martin S., 1984. "Rational expectations and the smoothing properties of inventories of finished goods," Journal of Monetary Economics, Elsevier, Elsevier, vol. 14(1), pages 71-96, July.
  12. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 365-400, June.
  13. Lars Peter Hansen & Thomas J. Sargent, 1980. "Methods for estimating continuous time Rational Expectations models from discrete time data," Staff Report, Federal Reserve Bank of Minneapolis 59, Federal Reserve Bank of Minneapolis.
  14. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S176-S215, June.
  15. Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers, Federal Reserve Bank of Minneapolis 127, Federal Reserve Bank of Minneapolis.
  16. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  17. 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, Elsevier, vol. 9(4), pages 363-404, December.
  18. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  19. Goodfriend, Marvin, 1985. "Reinterpreting money demand regressions," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 22(1), pages 207-241, January.
  20. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  21. 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.
  22. 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, Blackwell Publishing, vol. 16(2), pages 218-36, May.
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