IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Measuring trend output: how useful are the Great Ratios?

  • Cliff L.F. Attfield
  • Jonathan R.W. Temple

Standard macroeconomic models suggest that the 'great ratios' of consumption to output and investment to output should be stationary. The joint behaviour of consumption, investment and output can then be used to measure trend output. We adopt this approach for the USA and UK, and find support for stationarity of the great ratios when structural breaks are taken into account. From the estimated vector error correction models, we extract multivariate estimates of the permanent component in output, and comment on trend growth in the 1980s and the New Economy boom of the 1990s.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp03555.pdf
Download Restriction: no

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 03/555.

as
in new window

Length: 44 pages
Date of creation: Oct 2003
Date of revision:
Publication status: Published under different title in the Journal of Macroeconomics, 2010.
Handle: RePEc:bri:uobdis:03/555
Contact details of provider: Postal: 8 Woodland Road, Bristol, BS8 1TN
Phone: 0117 928 8415
Fax: 0117 928 8577
Web page: http://www.efm.bris.ac.uk/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Söderlind, Paul & Vredin, Anders, 1995. "Applied Cointegration Analysis in the Mirror of Macroeconomic Theory," CEPR Discussion Papers 1120, C.E.P.R. Discussion Papers.
  2. Dan Ben-David & David H. Papell, 1998. "Slowdowns And Meltdowns: Postwar Growth Evidence From 74 Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 561-571, November.
  3. Ben-David, Dan & Papell, David H, 2000. "Some Evidence on the Continuity of the Growth Process among the G-7 Countries," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 320-30, April.
  4. Clifford L.F. Attfield, 2003. "Structural Breaks and Permanent Trends," Bristol Economics Discussion Papers 03/545, Department of Economics, University of Bristol, UK.
  5. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387 National Bureau of Economic Research, Inc.
  6. Anindya Banerjee & Robin L. Lumsdaine & James H. Stock, 1990. "Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence," NBER Working Papers 3510, National Bureau of Economic Research, Inc.
  7. Gonzalo, J. & Granger, C., 1992. "Estimation of Common Long-Memory Components in Cointegrated Systems," Papers 4, Boston University - Department of Economics.
  8. Robert J. Gordon, 2000. "Does the "New Economy" Measure up to the Great Inventions of the Past?," NBER Working Papers 7833, National Bureau of Economic Research, Inc.
  9. Timothy Cogley, . "How Fast Can the New Economy Grow? A Bayesian Analysis of the Evolution of Trend Growth," Working Papers 2133301, Department of Economics, W. P. Carey School of Business, Arizona State University.
  10. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  11. Mills, Terence C, 2001. "Great Ratios and Common Cycles: Do They Exist for the UK?," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 35-51, January.
  12. Apostolos Serletis, 1996. "Government Activities and Tests of the Long-Run Implications of the Neoclassical Growth Model for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 635-42, August.
  13. Temple, Jonathan, 2002. "An Assessment of the New Economy," CEPR Discussion Papers 3597, C.E.P.R. Discussion Papers.
  14. Andrew B. Abel, 2003. "The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security," Econometrica, Econometric Society, vol. 71(2), pages 551-578, March.
  15. Eaton, Jonathan, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Wiley Blackwell, vol. 48(3), pages 435-45, July.
  16. Daniel, Betty C., 1997. "International interdependence of national growth rates: A structural trends anakysis," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 73-96, September.
  17. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Proietti, Tommaso, 1997. "Short-Run Dynamics in Cointegrated Systems," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(3), pages 405-22, August.
  19. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
  20. Serletis, Apostolos, 1994. "Testing the long-run implications of the neoclassical growth model for Canada," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 329-346.
  21. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  22. Ahmed, Shaghil & Rogers, John H., 2000. "Inflation and the great ratios: Long term evidence from the U.S," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 3-35, February.
  23. James Morley & Charles Nelson & Eric Zivot, 2002. "Why Are Beveridge-Nelson and Unobserved-Component Decompositions of GDP So Different?," Working Papers UWEC-2002-01, University of Washington, Department of Economics.
  24. Garratt, A. & Lee, K. & Pesaran, M. H. & Shin, Y., 1998. "A Long-run Structural Macro-econometric Model of the UK," Cambridge Working Papers in Economics 9812, Faculty of Economics, University of Cambridge.
  25. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
  26. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
  27. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  28. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  29. Fama, Eugene F., 1992. "Transitory variation in investment and output," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 467-480, December.
  30. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  31. Tommaso PROIETTI, 2002. "Some Reflections on Trend-Cycle Decompositions with Correlated Components," Economics Working Papers ECO2002/23, European University Institute.
  32. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  33. A. Scorcu, 2002. "On the Time Stability of the Output-Capital Ratio," Working Papers 434, Dipartimento Scienze Economiche, Universita' di Bologna.
  34. Anthony Garratt & Donald Robertson & Stephen Wright, 2004. "Inside the black box: permanent vs transitory components and economic fundamentals," Money Macro and Finance (MMF) Research Group Conference 2003 35, Money Macro and Finance Research Group.
  35. DeLoach, Stephen B. & Rasche, Robert H., 1998. "Stochastic trends and economic fluctuations in a large open economy," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 565-596, August.
  36. Jonathan Temple, 2002. "The Assessment: The New Economy," Oxford Review of Economic Policy, Oxford University Press, vol. 18(3), pages 241-264.
  37. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-40, September.
  38. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 241-65, February.
  39. Mellander, Erik & Vredin, A & Warne, A, 1992. "Stochastic Trends and Economic Fluctuations in a Small Open Economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(4), pages 369-94, Oct.-Dec..
  40. Bai, Jushan & Lumsdaine, Robin L & Stock, James H, 1998. "Testing for and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 395-432, July.
  41. Fisher, Lance A. & Huh, Hyeon-seung & Tallman, Ellis W., 2003. "Permanent income and transitory variation in investment and output," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 149-168, June.
  42. Whelan, Karl, 2002. "A Guide to U.S. Chain Aggregated NIPA Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 217-33, June.
  43. Bent Nielsen & Soren Johansen and Rocco Mosconi, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Economics Series Working Papers 2000-W22, University of Oxford, Department of Economics.
  44. James C. Morley & Charles R. Nelson & Eric Zivot, 2003. "Why Are the Beveridge-Nelson and Unobserved-Components Decompositions of GDP So Different?," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 235-243, May.
  45. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  46. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  47. Lippi, Marco & Reichlin, Lucrezia, 1994. "Diffusion of Technical Change and the Decomposition of Output into Trend and Cycle," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 19-30, January.
  48. Cooley, Thomas F. & Dwyer, Mark, 1998. "Business cycle analysis without much theory A look at structural VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 57-88.
  49. Lau, Sau-Him Paul & Sin, Chor-Yiu, 1997. "Observational equivalence and a stochastic cointegration test of the neoclassical and Romer's increasing returns models," Economic Modelling, Elsevier, vol. 14(1), pages 39-60, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bri:uobdis:03/555. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jonathan Temple)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.