Revisiting the Great Ratios Hypothesis

Alexander Chudik, Mohammad Pesaran and Ronald Smith

No 415, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Kaldor called the constancy of certain ratios stylized facts, whereas Klein and Kosobud called them great ratios. While they often appear in theoretical models, the empirical literature finds little evidence for them, perhaps because the procedures used cannot deal with lack of cointegration, two-way causality and cross-country error dependence. We propose a new system pooled mean group estimator that can deal with these features. Monte Carlo results show it performs well compared with other estimators, and using it on a dataset over 150 years and 17 countries, we find support for five of the seven ratios considered.

Keywords: great ratios; heterogeneous panels; cointegration; two-way long-run causality; error cross-sectional dependence (search for similar items in EconPapers)
JEL-codes: B4 C18 C33 C5 (search for similar items in EconPapers)
Pages: 95
Date: 2022-03-18, Revised 2023-04-14
New Economics Papers: this item is included in nep-ban, nep-ets, nep-gro and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Revisiting the Great Ratios Hypothesis (2023)
Working Paper: Revisiting the Great Ratios Hypothesis (2022)
Working Paper: Revisiting the Great Ratios Hypothesis (2022)
Working Paper: Revisiting the Great Ratios Hypothesis (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:93887

DOI: 10.24149/gwp415r1

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