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Fractional Integration and Business Cycles Features

  • Luis A. Gil-Alana


    (School of Economics and Business Administration, University of Navarra)

  • Bertrand Candelon

We show in this article that fractionally integrated univariate models for GDP may lead to a better replication of business cycle characteristics. We firstly show that the business cycle features are clearly affected by the degree of integration as well as by the other short run components of the series. Then, we model the real GDP in France, the UK and the US by means of fractionally ARIMA (ARFIMA) models, and show that the three time series can be specified in terms of this type of models with orders of integration higher than one but smaller than two. Comparing the ARFIMA specifications with those based on ARIMA models, we show via simulations that the former better describes the business cycles features of the data at least for the cases of the UK and the US.

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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 09/04.

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Length: 27 pages
Date of creation: 01 Apr 2004
Date of revision:
Publication status: Published, Empirical Economics, 2004, vol. 29: pp. 343-359
Handle: RePEc:una:unccee:wp0904
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  11. L. A. Gil-Alana & P. M. Robinson, 2001. "Testing of seasonal fractional integration in UK and Japanese consumption and income," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(2), pages 95-114.
  12. Gil-Alana, Luis A., 2000. "Mean reversion in the real exchange rates," Economics Letters, Elsevier, vol. 69(3), pages 285-288, December.
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  14. Sowell, Fallaw, 1992. "Modeling long-run behavior with the fractional ARIMA model," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 277-302, April.
  15. Gil-Alana, Luis A., 1999. "Testing fractional integration with monthly data," Economic Modelling, Elsevier, vol. 16(4), pages 613-629, December.
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  19. L. A. Gil-Alaña & Peter M. Robinson, 2001. "Testing of seasonal fractional integration in UK and Japanese consumption and income," LSE Research Online Documents on Economics 298, London School of Economics and Political Science, LSE Library.
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