Time-varying cointegration and the UK great ratios
George Kapetanios (),
Stephen Millard (),
Katerina Petrova () and
Simon Price ()
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George Kapetanios: King's College, London
Stephen Millard: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Katerina Petrova: St Andrews University
No 789, Bank of England working papers from Bank of England
We re-examine the great ratios associated with balanced growth models and ask whether they have remained constant over time. Having first looked at whether Kaldor’s stylised facts still apply to the UK data, we employ a nonparametric methodology that allows for slowly varying coefficients to estimate trends over time. We formally test for stable relationships in the great ratios with a new statistical test based on these nonparametric estimators designed to detect time varying cointegrating relationships. Small sample properties of the test are explored in a small Monte Carlo exercise. Generally, we find little evidence for cointegration when parameters are constant, but strong evidence when allowing for time variation. The implications are that in macroeconometric models (including DSGE models), provision should be made to explicitly facilitate such shifting long-run relationships.
Keywords: Time variation; great ratios; cointegration (search for similar items in EconPapers)
JEL-codes: C14 C26 C51 O40 (search for similar items in EconPapers)
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Working Paper: Time varying cointegration and the UK great ratios (2018)
Working Paper: Time varying cointegration and the UK Great Ratios (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0789
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