IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

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.

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://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr75.pdf
Download Restriction: no

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

as
in new window

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

Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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. James C. Morley, 2007. "The Slow Adjustment of Aggregate Consumption to Permanent Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 615-638, 03.
  2. Matthew Shapiro & Mark Watson, 1988. "Sources of Business Cycles Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 111-156 National Bureau of Economic Research, Inc.
  3. 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.
  4. Bernard, Jean-Thomas & Idoudi, Nadhem & Khalaf, Lynda & Yelou, Clement, 2007. "Finite sample multivariate structural change tests with application to energy demand models," Journal of Econometrics, Elsevier, vol. 141(2), pages 1219-1244, December.
  5. Cook, Steven, 2005. "The stationarity of consumption-income ratios: Evidence from minimum LM unit root testing," Economics Letters, Elsevier, vol. 89(1), pages 55-60, October.
  6. James Morley & Charles Nelson & Eric Zivot, 2003. "Why are Beveridge-Nelson and Unobserved-component decompositions of GDP so Different?," Working Papers UWEC-2002-18-P, University of Washington, Department of Economics.
  7. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
  8. 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.
  9. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  10. Paap, R. & van Dijk, H.K., 2002. "Bayes estimates of Markov trends in possibly cointegrated series: an application to US consumption and income," Econometric Institute Research Papers EI 2002-42, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  11. 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.
  12. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
  13. Jonathan Temple, 2002. "An Assessment of the New Economy," Bristol Economics Discussion Papers 02/542, Department of Economics, University of Bristol, UK.
  14. 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.
  15. Christopher J. Erceg & Luca Guerrieri, 2004. "Can Long-Run Restrictions Identify Technology Shocks?," Computing in Economics and Finance 2004 3, Society for Computational Economics.
  16. Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Anthony Garratt & Kevin Lee & Mohammad Hashem Pesaran & Yongcheol Shin, 2001. "A long run structural macroeconometric model of the UK," ESE Discussion Papers 35, Edinburgh School of Economics, University of Edinburgh.
  18. 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.
  19. 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.
  20. 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.
  21. Bunzel, Helle & Iglesias, Emma M., 2006. "Testing for Breaks Using Alternating Observations," Staff General Research Papers Archive 12694, Iowa State University, Department of Economics.
  22. Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez & Thomas J. Sargent & Mark Watson, 2006. "A,B,C's (and D's)'s for Understanding VARS," Levine's Bibliography 321307000000000646, UCLA Department of Economics.
  23. 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.
  24. 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.
  25. Soderlind, P. & Vredin, A., 1994. "Applied Conintegration Analysis in the Mirror of Macroeconomic Theory," Papers 584, Stockholm - International Economic Studies.
  26. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  27. 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.
  28. Dan Ben-David & David H. Papell, 1997. "Slowdowns and Meltdowns: Postwar Growth Evidence from 74 Countries," NBER Working Papers 6266, National Bureau of Economic Research, Inc.
  29. 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.
  30. D'Adda, Carlo & Scorcu, Antonello E., 2003. "On the time stability of the output-capital ratio," Economic Modelling, Elsevier, vol. 20(6), pages 1175-1189, December.
  31. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  32. 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.
  33. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
  34. Chang-Jin Kim & Jeremy Piger & Richard Startz, 2003. "The Dynamic Relationship Between Permanent and Transitory Components of U.S. Business Cycle," Working Papers UWEC-2003-36, University of Washington, Department of Economics.
  35. Hoffmann, Mathias, 2006. "Balanced Growth and Empirical Proxies of the Consumption-Wealth Ratio," Technical Reports 2006,26, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  36. Karl Whelan & Stacey Tevlin, 2003. "Explaining the investment boom of the 1990s," Open Access publications 10197/202, School of Economics, University College Dublin.
  37. Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers 1494, Econometric Society.
  38. 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.
  39. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  40. Lippi, Marco & Reichlin, Lucrezia, 1993. "Diffusion of Technical Change and the Decomposition of Output into Trend and Cycle," CEPR Discussion Papers 775, C.E.P.R. Discussion Papers.
  41. Nelson, Charles R & Piger, Jeremy & Zivot, Eric, 2001. "Markov Regime Switching and Unit-Root Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 404-15, October.
  42. Tommaso Proietti, 2006. "Trend-Cycle Decompositions with Correlated Components," Econometric Reviews, Taylor & Francis Journals, vol. 25(1), pages 61-84.
  43. James A. Kahn & Robert W. Rich, 2003. "Tracking the new economy: using growth theory to detect changes in trend productivity," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  44. Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
  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. 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.
  47. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  48. Jonathan Temple, 2002. "The Assessment: The New Economy," Oxford Review of Economic Policy, Oxford University Press, vol. 18(3), pages 241-264.
  49. Jushan Bai & Robin L. Lumsdaine & James H. Stock, 1998. "Testing For and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 395-432.
  50. Carsten Trenkler & Pentti Saikkonen & Helmut Lütkepohl, 2008. "Testing for the Cointegrating Rank of a VAR Process with Level Shift and Trend Break," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(2), pages 331-358, 03.
  51. 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.
  52. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
  53. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November.
  54. Shaghil Ahmed & John H. Rogers, 1998. "Inflation and the great ratios: long-term evidence from the U.S," International Finance Discussion Papers 628, Board of Governors of the Federal Reserve System (U.S.).
  55. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Springer;Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
  56. 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.
  57. 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.
  58. Andrew B. Abel, 2002. "The effects of a baby boom on stock prices and capital accumulation in the presence of Social Security," Working Papers 03-2, Federal Reserve Bank of Philadelphia.
  59. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
  60. David Harvey & Stephen Leybourne & Paul Newbold, 2003. "How great are the great ratios?," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 163-177.
  61. 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.
  62. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  63. Fama, Eugene F., 1992. "Transitory variation in investment and output," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 467-480, December.
  64. Michael G. Palumbo & Jeremy B. Rudd & Karl Whelan, 2002. "On the relationships between real consumption, income and wealth," Finance and Economics Discussion Series 2002-38, Board of Governors of the Federal Reserve System (U.S.).
  65. Jesus Clemente & Antonio Montanes & Montserrat Ponz, 1999. "Are the consumption/output and investment/output ratios stationary? An international analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 6(10), pages 687-691.
  66. 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.
  67. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  68. John H. Cochrane, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 241-265.
  69. Anthony Garratt & Donald Robertson & Stephen Wright, 2005. "Permanent vs Transitory Components and Economic Fundamentals," Birkbeck Working Papers in Economics and Finance 0501, Birkbeck, Department of Economics, Mathematics & Statistics.
  70. 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.
  71. Jonathan Eaton, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 435-445.
  72. 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..
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:man:cgbcrp:75. 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: (Marianne Sensier)

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.