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Modelling Real Gdp Per Capita In The Usa:Cointegration Tests

Author

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  • Ivan O. KITOV
  • Oleg I. KITOV
  • Svetlana A. DOLINSKAYA

Abstract

A two-component model for the evolution of real GDP per capita in the United States is presented and tested. First component of the growth rate of GDP represents the growth trend and is inversely proportional to the attained level of real GDP per capita, with the nominator being constant through time. Second component is responsible for the fluctuations around the growth trend and is defined as a half of the growth rate of the number of 9-year-olds. This nonlinear relationship between the growth rate of real GDP per capita and the number of 9-year-olds in the US is tested for cointegration. For linearization of the problem, the population time series is predicted using the relationship. Both single year of age population time series, the measured and predicted one, are shown to be nonstationary and integrated of order 1 � the original series have unit roots and their first differences have no unit root. The Engel-Granger procedure is applied to the difference of the measured and predicted time series and to the residuals of a linear regression. Both tests show the existence of a cointegrating relation. The Johansen test results in the cointegrating rank 1. Since the cointegrating relation between the measured and predicted number of 9-year-olds does exist, the VAR, VECM, and linear regression are used in estimation of the goodness of fit and root mean-square errors, (RMSE). The highest R2=0.95 and the lowermost RMSE is obtained in the VAR representation. The VECM provides consistent, statistically reliable, and significant estimates of the slope in the cointegrating relation. Econometrically, the tests for cointegration show that the deviations of real economic growth in the US from the growth trend, as defined by constant annual increment of real per capita GDP, are driven by the change in the number of 9-year-olds.

Suggested Citation

  • Ivan O. KITOV & Oleg I. KITOV & Svetlana A. DOLINSKAYA, 2009. "Modelling Real Gdp Per Capita In The Usa:Cointegration Tests," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(1(7)_ Spr).
  • Handle: RePEc:ush:jaessh:v:4:y:2009:i:1(7)_spring2009:52
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    References listed on IDEAS

    as
    1. Ivan Kitov, 2005. "GDP growth rate and population," Economics Bulletin, AccessEcon, vol. 28(9), pages 1.
    2. Kitov, Ivan, 2006. "Real GDP per capita in developed countries," MPRA Paper 2738, University Library of Munich, Germany.
    3. Carl Chiarella & Shenhuai Gao, 2002. "Type I Spurious Regression in Econometrics," Working Paper Series 114, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    4. Ivan, Kitov, 2006. "Exact prediction of inflation in the USA," MPRA Paper 2735, University Library of Munich, Germany.
    5. Ivan O. Kitov, 2005. "Modelling the overall personal income distribution in the USA from 1994 to 2002," Working Papers 07, ECINEQ, Society for the Study of Economic Inequality.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. have a happy 2017 recession
      by Ivan Kitov in Economics as Classical Mechanics on 2017-01-02 16:24:00

    Citations

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    Cited by:

    1. Ivan O. KITOV, 2008. "The Driving Force of Labor Force Participation in Developed Countries," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 203-222.
    2. Kitov, Ivan & Kitov, Oleg, 2009. "Modelling and predicting labor force productivity," MPRA Paper 15152, University Library of Munich, Germany.
    3. Ivan O. KITOV, 2010. "Predicting Real Economic Growth In France, Germany, New Zealand, And The United Kingdom," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(1(11)_Spr), pages 48-54.
    4. Kitov, Ivan & Kitov, Oleg, 2012. "Real GDP per capita since 1870," MPRA Paper 39021, University Library of Munich, Germany.
    5. Dogru, Bülent, 2015. "Is Per Capıta Real GDP Stationary in High Income OECD Countrıes? Evidence from Panel Unıt Root Test With Multiple Structural Breaks," MPRA Paper 63856, University Library of Munich, Germany.
    6. Ivan O. Kitov & Oleg I. Kitov, 2010. "S&P 500 returns revisited," Papers 1004.0213, arXiv.org.
    7. Kitov, Ivan, 2009. "Predicting real GDP per capita in France, Germany, New Zealand, and the UK," MPRA Paper 15503, University Library of Munich, Germany.
    8. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2008. "Comprehensive macro-model for the U.S. economy," MPRA Paper 9808, University Library of Munich, Germany.
    9. Guironnet Jean-Pascal, 2009. "Technological Catch-up and Scale Effect in OECD Countries: A Bipolarized Growth Convergence," Working Papers 09-05, Association Française de Cliométrie (AFC).
    10. Kitov, Ivan & Kitov, Oleg, 2007. "Exact prediction of S&P 500 returns," MPRA Paper 6056, University Library of Munich, Germany.

    More about this item

    Keywords

    real GDP per capita; population estimates; cointegration; VAR; VECM; USA;

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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