TY  - JOUR
AU  - King,Robert G.
AU  - Plosser,Charles I.
AU  - Stock,James H.
AU  - Watson,Mark W.
TI  - Stochastic Trends and Economic Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2229
PY  - 1992
Y2  - February 1992
UR  - http://www.nber.org/papers/w2229
L1  - http://www.nber.org/papers/w2229.pdf
N1  - Author contact info:
Robert King
Department of Economics
Boston University
270 Bay State Road
Boston, MA  02215
Tel: 617/353-5941
E-Mail: rking@bu.edu

Charles I. Plosser
President
Federal Reserve Bank of Philadelphia
Ten Independence Mall
Philadelphia, PA 19106
Tel: 215/574-6432
Fax: 585/442-7069
E-Mail: charles.plosser@phil.frb.org

James H. Stock
Department of Economics
Harvard University
Littauer Center M27
Cambridge, MA 02138
Tel: 617/496-0502
Fax: 617/495-7730
E-Mail: James_Stock@harvard.edu

Mark W. Watson
Department of Economics
Princeton University
Princeton, NJ 08544-1013
Tel: 609/258-4811
Fax: 609/258-5533
E-Mail: mwatson@princeton.edu
AB  - Recent developments in macroeconomic theory emphasize that transient economic fluctuations can arise as responses to changes in long run factors -- in particular, technological improvements -- rather than short run factors. This contrasts with the view that short run fluctuations and shifts in long run trends are largely unrelated. We examine empirically the effect of shifts in stochastic trends that are common to several macroeconomic series. Using a linear time series model related to a VAR, we consider first a system with GNP, consumption and investment with a single common stochastic trend; we then examine this system augmented by money and prices and an additional stochastic trend. Our results suggest that movements in the "real" stochastic trend account for one-half to two-thirds of the variation in postwar U.S. GNP.
ER  -