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Do we need a stochastic trend in cay estimation? Yes

Marcella Lucchetta (), Michele Costola (), Lorenzo Frattarolo and Antonio Paradiso ()
Additional contact information
Michele Costola: Research Center SAFE, Goethe University Frankfurt.
Lorenzo Frattarolo: Department of Economics, University Of Venice Cà Foscari

No 2016:24, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: The paper investigates the importance of modeling in cay estimations from a statistical and economic perspective by observing the stochastic trend, a thus far neglected component. In order to do this, we perform an empirical analysis on US secular annual data from 1900 to 2015 considering the cay with non-durables and services and the cay with total consumption expenditure. Findings show the usefulness of including the stochastic trend in cay estimation. Furthermore, out-of-sample statistical and economic significance tests show the ability of the cay model with trend to outperform the traditional cay measure.

JEL-codes: E21 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2016
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