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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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    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 5-89, Wharton School Rodney L. White Center for Financial Research.
    3. Mariola Pilatowska, 2010. "Choosing a Model and Strategy of Model Selection by Accumulated Prediction Error," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 10, pages 107-119.
    4. 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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