Spectral Analysis Cannot Tell A Macro-Econometrician Whether His Time Series Came From A Stochastic Economy Or A Deterministic Economy

William A. Brock and Gary Chamberlain

No 292596, SSRI Workshop Series from University of Wisconsin-Madison, Social Systems Research Institute

Abstract: Consider any spectral measure G generated by some stationary stochastic process. We show that there is a deterministic overlapping generations economy whose equilibrium trajectory generates an empirical spectral measure that approximates G. This result shows that linear time series methods cannot observationally differentiate between deterministic and stochastic economies. Our paper relates the above result to recent macroeconomic literature that attempts to model business cycles using low order deterministic "chaotic" difference equations in contrast to the macroeconomic literature that uses low order stable stochastic difference equations. We briefly discuss the problem of observationally distinguishing these two opposing models of the business cycle.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 14
Date: 1984-10
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwssri:292596

DOI: 10.22004/ag.econ.292596

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