NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Danny Quah

NBER Working Paper No. 2450
Issued in November 1987
NBER Program(s):   EFG

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.

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Document Object Identifier (DOI): 10.3386/w2450

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