The sources and nature of long-term memory in aggregate output

Joseph Haubrich and Andrew Lo ()

Economic Review, 2001, issue Q II, 15-30

Abstract: This article examines the stochastic properties of aggregate macroeconomic time series from the standpoint of fractionally integrated models, focusing on the persistence of economic shocks. The authors develop a simple macroeconomic model that exhibits long-range dependence, a consequence of aggregation in the presence of real business cycles. To implement these results empirically, they employ a test for fractionally integrated time series based on the Hurst-Mandelbrot rescaled range. This test is robust to short-range dependence and is applied to quarterly and annual real GDP to determine the sources and nature of long-range dependence in the business cycle.

Date: 2001
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