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Balanced growth and the great ratios: new evidence for the US and UK

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

Standard macroeconomic models suggest that the ‘great ratios’ of consumptionto output and investment to output should be stable functions of structural parameters. We examine whether the ratios are stationary for the US and UK, allowing for structural breaks that could reflect timevarying parameters. We find stronger evidence for stationarity than previous work. We then use the long-run restrictions associated with the stationarity of the great ratios to extract measures of trend output from the joint behaviour of consumption, investment and output. This approach isattractive because it uses information from several series without requiring restrictive assumptions.

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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 75.

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Length: 46 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:man:cgbcrp:75
Contact details of provider: Postal: Manchester M13 9PL
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