Evidence of non-fundamentalness in OECD capital stocks

Antonio Aguirre () and Ignacio N. Lobato ()
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Antonio Aguirre: UC Santa Cruz
Ignacio N. Lobato: Instituto Tecnológico Autónomo de México

Empirical Economics, 2024, vol. 67, issue 2, No 12, 772 pages

Abstract: Abstract This note examines evidence of non-fundamentalness in the rate of variation of annual per capita capital stock for OECD countries in the period 1955–2020. Leeper et al. (2013) proposed a theoretical model in which, due to agents performing fiscal foresight, this economic series could exhibit a non-fundamental behavior (in particular, a non-invertible moving average component), which has important implications for modeling and forecasting. Using the methodology proposed in Velasco and Lobato (2018), which delivers consistent estimators of the autoregressive and moving average parameters without imposing fundamentalness assumptions, we empirically examine whether the capital data are better represented with an invertible or a non-invertible moving average model. We find strong evidence in favor of the non-invertible representation since for the countries that present significant innovation asymmetry, the selected model is predominantly non-invertible.

Keywords: Non-causality; Non-invertibility; Detrending (search for similar items in EconPapers)
JEL-codes: C22 C52 E22 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-024-02564-5

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