The Persistence of Shocks to Macroeconomic Time Series: Some Evidence from Economic Theory

Matthew J Cushing and Mary G McGarvey

Journal of Business & Economic Statistics, 1996, vol. 14, issue 2, 179-87

Abstract: This paper presents new estimates of persistence of shocks to quarterly labor income, monthly Treasury bill yields, and annual real common stock dividends. The authors replace orthogonality conditions involving near unit root instruments with restrictions on innovation variances implied by a generalized version of the permanent income hypothesis, a term structure model, and constant discount rate efficient markets model. Conditional on these theories, they obtain precise estimates of persistence without imposing arbitrary restrictions on the magnitude of the largest root. Shocks are more persistent than indicated by unrestricted trend stationary models but less persistent than implied by unit root models.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:14:y:1996:i:2:p:179-87

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