Macro and Financial Markets: The Memory of an Elephant?
AbstractMacroeconomic and aggregate financial series share an unconventional type of nonlinear dynamics. Existing techniques (like co-integration) model these dynamics incompletely, hence generating seemingly paradoxical results. To avoid this, we provide a methodology to disentangle the long-run relation between variables from their own dynamics, and illustrate with two applications. First, in the forward-premium puzzle, adding a component quantifying the persistent nonlinear dynamics of exchange rates yields substantial predictability and makes the forward-premium term insignificant. Second, S&P 500 grows in a pattern of momentum followed by reversal, forming long cycles around a trend given by GDP, a stable non-breaking relation since WWII. Classification-Keywords:
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 17-08.
Date of creation: Jan 2008
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- 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.
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