Measuring persistence in aggregate output: ARMA models, fractionally integrated ARMA models and nonparametric procedures

Erhard Reschenhofer (), Benedikt Pötscher and Michael A. Hauser ()
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Erhard Reschenhofer: Institut für Statistik, Universität Wien, Universitätsstrasse 5, A-1010 Vienna, Austria
Michael A. Hauser: Institut für Statistik, Wirtschaftsuniversität Wien, Augasse 2-6, A-1090 Vienna, Austria

Empirical Economics, 1999, vol. 24, issue 2, 243-269

Abstract: Econometric issues in the estimation of persistence in macroeconomic time series are considered. In particular, the relative merits of estimates based on ARMA models, ARFIMA models and nonparametric procedures are investigated. It is shown that ARFIMA models are inappropriate for the purpose of estimating persistence. Furthermore, some of the criticism leveled in the literature against the use of ARMA models for estimating long run properties is put into perspective. Methodological issues arising in the estimation of ARMA models that are relevant to estimation of persistence are discussed. It is shown how overparameterization of an ARMA model may lead to severely downward biased estimates of persistence. The theoretical results are employed to explain some of the findings in Campbell & Mankiw (1987a) and Christiano & Eichenbaum (1990). The methodological aspects of the paper are also relevant for the problem of estimating the value of a spectral density at any given frequency. An empirical study confirms persistence estimates reported in Campbell & Mankiw (1987a), and shows that ARMA models as well as nonparametric procedures give very similar estimates of persistence if properly applied.

Keywords: ARMA; model; ·; fractionally; integrated; ARMA; model; ·; persistence; ·; spectral; density; estimation (search for similar items in EconPapers)
JEL-codes: C22 C51 E32 (search for similar items in EconPapers)
Date: 1999-05-11
Note: received: May 1996/final version received: March 1998
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Citations: View citations in EconPapers (26)

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