The Dependence Structure of Macroeconomic Variables in the US

Cathy Ning and Loran Chollete ()
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Loran Chollete: Faculty of Social Sciences, Department of Business Administration, University of Stavanger, Stavanger, Norway

No 5, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: A central role for economic policy involves reducing the incidence of systemic downturns, when key economic variables experience joint extreme events. In this paper, we empirically analyze such dependence using two approaches, correlations and copulas. We document four findings. First, linear correlations and copulas disagree substantially about the nation’s dependence structure, indicating correlation complexity in the US economy. Second, GDP exhibits linear dependence with interest rates and prices, but no extreme dependence with the latter. This is consistent with the existence of liquidity traps. Third, GDP exhibits asymmetric extreme dependence with employment, consumption and investment, with relatively greater dependence during downturns. Fourth, money is neutral, especially during extreme economic conditions.

Keywords: Asymmetric dependence; Copula; Correlation Complexity; Extreme Event; Economic Policy; Money Neutrality; Systemic Downturn (search for similar items in EconPapers)
JEL-codes: C14 E20 E30 E40 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-11
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Citations: View citations in EconPapers (2)

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Working Paper: The Dependence Structure of Macroeconomic Variables in the US (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp005

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