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What Do We Learn from Unit Roots in Macroeconomic Time Series?

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  • Danny Quah

Abstract

It is often argued that the presence of a unit root in aggregate output implies that there is no "business cycle": the economy does not return to trend following a disturbance. This paper makes this notion precise, but then develops a simple aggregative model where this relation is contradicted. In the model output both has a unit root, and displays repeated short-run fluctuations around a deterministic trend. Some summary statistical evidence is presented that suggests the phenomena described in the paper is not without empirical basis.
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Suggested Citation

  • Danny Quah, 1987. "What Do We Learn from Unit Roots in Macroeconomic Time Series?," Working papers 469, Massachusetts Institute of Technology (MIT), Department of Economics.
  • Handle: RePEc:mit:worpap:469
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    References listed on IDEAS

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    1. Francis X. Diebold & Glenn D. Rudebusch, 1987. "Does the business cycle have duration memory?," Special Studies Papers 223, Board of Governors of the Federal Reserve System (U.S.).
    2. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    3. J. Bradford De Long & Lawrence H. Summers, 1984. "Are Business Cycles Symmetric?," NBER Working Papers 1444, National Bureau of Economic Research, Inc.
    4. Durlauf, Steven N & Phillips, Peter C B, 1988. "Trends versus Random Walks in Time Series Analysis," Econometrica, Econometric Society, vol. 56(6), pages 1333-1354, November.
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    Cited by:

    1. F. Goerlich, 1991. "Persistencia en las fluctuaciones económicas: evidencia para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 15(1), pages 193-202, January.
    2. Joseph G. Haubrich & Andrew W. Lo, "undated". "The Sources and Nature of Long-Term Memory in the Business Cycle," Rodney L. White Center for Financial Research Working Papers 05-89, Wharton School Rodney L. White Center for Financial Research.
    3. West, Kenneth D, 1988. "On the Interpretation of Near Random-walk Behavior in GNP," American Economic Review, American Economic Association, vol. 78(1), pages 202-209, March.

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