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Nelson-Plosser revisited: the ACF approach

  • Karim M. Abadir

    ()

    (Imperial College London, London, UK and The Rimini Centre for Economic Analysis, Italy)

  • Gabriel Talmain

    ()

    (University of Glasgow, Glasgow, UK)

  • Giovanni Caggiano

    (University of Padua, Italy)

We detect a new stylized fact about the common dynamics of macroeconomic and financial aggregates. The rate of decay of the memory of these series is depicted by their Auto-Correlation Functions (ACFs). They all share a common four-parameter functional form that we derive from the dynamics of an RBC model with heterogeneous firms. We find that, not only does our formula fit the data better than the ACFs that arise from autoregressive models, but it also yields the correct shape of the ACF. This can help policymakers understand better the lags with which an economy evolves, and the onset of its turning points. Classification-JEL: JEL E32, E52, E63

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 18-08.

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Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:rim:rimwps:18-08
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