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Unit Roots in Macroeconomic Time Series: Some Critical Issues

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  • Bennett T. McCallum

Abstract

This paper suggests that the relevant question concerning unit root' in the U.S. real GNP time series pertains to the relative importance of difference-stationary and trend-stationary components. Various analytical approaches indicate than an accurate answer is not obtainable with existing data. The paper next considers whether trending series should be differences prior to use in regression analysis and suggests it may not matter greatly if autocorrelated residuals are avoided. Finally, the paper argues that the absence of cointegration among variables does not imply the absence of any practically useful long-run relationship.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4368.

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Date of creation: Sep 1993
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Publication status: published as Economic Quarterly, Federal Reserve Bank of Richmond, Vol. 79, No. 2, pp. 13-44, (Spring 1993).
Handle: RePEc:nbr:nberwo:4368

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Cited by:
  1. Reynard, Samuel, 2007. "Maintaining low inflation: Money, interest rates, and policy stance," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1441-1471, July.
  2. Caporale, Guglielmo Maria & Gil-Alana, Luis A., 2004. "Fractional cointegration and tests of present value models," Review of Financial Economics, Elsevier, vol. 13(3), pages 245-258.
  3. Weshah A. Razzak, 2003. "Wage-Price Dynamics, the Labour Market and Deflation in Hong Kong," Working Papers 242003, Hong Kong Institute for Monetary Research.
  4. Bennett T. McCallum, 2010. "Is the Spurious Regression Problem Spurious?," NBER Working Papers 15690, National Bureau of Economic Research, Inc.
  5. Sherrill Shaffer, 2002. "Conduct in a Banking Monopoly," Review of Industrial Organization, Springer, vol. 20(3), pages 221-238, May.
  6. Ziesemer, Thomas, 2011. "Country terms of trade: Trends, unit roots, over-differencing, endogeneity, time dummies, and heterogeneity," MERIT Working Papers 065, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  7. Stamatopoulos Theodoros, 2005. "Prices and Exchange Rate of Hellenic Drachma (GRD), during 1981-," International Finance 0505013, EconWPA.
  8. Caporale, Guglielmo Maria & Gil-Alaña, Luis A., 2000. "Fractional cointegration and tests of present value models," SFB 373 Discussion Papers 2000,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  9. W A Razzak, 2007. "A Perspective on Unit Root and Cointegration in Applied Macroeconomics," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(1), pages 77-102.
  10. Lavan Mahadeva and Paul Robinson, 2004. "Unit Root Testing in a Central Bank," Handbooks, Centre for Central Banking Studies, Bank of England, number 22.
  11. Eric Parrado H., 2001. "Foreign Shocks and Monetary Policy Transmission in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 4(3), pages 29-57, December.
  12. McNew, Kevin, 1996. "Spatial Market Integration: Definition, Theory, And Evidence," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 25(1), April.
  13. Zsolt Becsi, 1994. "Indicators of the general price level and inflation," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 27-39.
  14. Koushik Ghosh & Peter Saunders & Basudeb Biswas, 2000. "Trade and wage inequality: Are they related?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(3), pages 364-376, September.
  15. Caporale, Guglielmo Maria & Hassapis, Christis & Pittis, Nikitas, 1998. "Unit roots and long-run causality: investigating the relationship between output, money and interest rates," Economic Modelling, Elsevier, vol. 15(1), pages 91-112, January.

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