NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Interpretation of Near Random-Walk Behavior in GNP

Kenneth D. West

NBER Working Paper No. 2364 (Also Reprint No. r1219)
Issued in August 1987
NBER Program(s):   EFG

It is shown that GNP will have an autoregressive root very close to unity in a variant of Taylor's (1980a,b) overlapping wage contracts model, for stylized versions of simple money supply rules and plausible values for the model's parameters. In this variant, monetary policy is the only reason for serial correlation in GNP. It is premature, therefore, to conclude, as some authors, have, that the presence of such a root in U.S. GNP is inconsistent with either a stationary natural rate or with nominal shocks playing a major role in the business cycle.

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Document Object Identifier (DOI): 10.3386/w2364

Published: American Economic Review, Vol. 78, No. 1, March 1988, pp. 202-209.

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