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Do shocks permanently change output? : Local persistency in economic time series

Listed author(s):
  • Lima, Luiz Renato Regis de Oliveira
  • Xiao, Zhijie

While it is recognized that output fuctuations are highly persistent over certain range, less persistent results are also found around very long horizons (Conchrane, 1988), indicating the existence of local or temporary persistency. In this paper, we study time series with local persistency. A test for stationarity against locally persistent alternative is proposed. Asymptotic distributions of the test statistic are provided under both the null and the alternative hypothesis of local persistency. Monte Carlo experiment is conducted to study the power and size of the test. An empirical application reveals that many US real economic variables may exhibit local persistency.

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Paper provided by FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) with number 529.

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Date of creation: 01 Mar 2004
Handle: RePEc:fgv:epgewp:529
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