What Do We Learn from Unit Roots in Macroeconomic Time Series?

Danny Quah ()

No 2450, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It is often argued that the presence of a unit root in aggregate output implies that there is no "business cycle": the economy does not return to trend following a disturbance. This paper makes this notion precise, but then develops a simple aggregative model where this relation is contradicted. In the model output both has a unit root, and displays repeated short-run fluctuations around a deterministic trend. Some summary statistical evidence is presented that suggests the phenomena described in the paper is not without empirical basis.

Date: 1987-12
Note: EFG
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Working Paper: What Do We Learn from Unit Roots in Macroeconomic Time Series? (1987)
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