Estimating growth rate in the presence of serially correlated errors
The aim of this study is to address the difficulties frequently encountered in estimating average growth rates by a log-linear time trend in the presence of serially correlated errors. There are a few studies in the literature that provide some guidance on choosing the appropriate method depending on the degree of first order serial correlation. However, the higher order serial correlation case is generally ignored. This study proposes the Nelder-Mead simplex method as a general solution to estimating linear trend in the presence of serial correlation of any order. The proposed method and the conventional methods are applied to the real GDP per capita series of 27 OECD countries. Twelve series seem to be better modelled by a log-linear trend with AR(2) residuals, and five of them yield remarkably different growth rates.
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Volume (Year): 10 (2003)
Issue (Month): 15 ()
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References listed on IDEAS
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- Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
- Chipman, John S, 1979. "Efficiency of Least-Squares Estimation of Linear Trend when Residuals are Autocorrelated," Econometrica, Econometric Society, vol. 47(1), pages 115-28, January.
- Eugene Canjels & Mark W. Watson, 1994.
"Estimating deterministic trends in the presence of serially correlated errors,"
Working Paper Series, Macroeconomic Issues
94-19, Federal Reserve Bank of Chicago.
- Eugene Canjels & Mark W. Watson, 1997. "Estimating Deterministic Trends In The Presence Of Serially Correlated Errors," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 184-200, May.
- Eugene Canjels & Mark W. Watson, 1994. "Estimating Deterministic Trends in the Presence of Serially Correlated Errors," NBER Technical Working Papers 0165, National Bureau of Economic Research, Inc.
- Russell R. Barton & John S. Ivey, Jr., 1996. "Nelder-Mead Simplex Modifications for Simulation Optimization," Management Science, INFORMS, vol. 42(7), pages 954-973, July.
- John Baffes & Jean-Charles Le Vallee, 2003. "Unit roots versus trend stationarity in growth rate estimation," Applied Economics Letters, Taylor & Francis Journals, vol. 10(1), pages 9-14.
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