NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Survival of Noise Traders in Financial Markets

J. Bradford De Long, Andrei Shleifer, Lawrence H. Summers, Robert J. Waldmann

NBER Working Paper No. 2715
Issued in September 1988
NBER Program(s):   ME

We use the revised estimates of U.S. GNP constructed by Christina Romer (1989) to assess the time-series properties of U.S. output per capita over the past century. We reject at conventional significance levels the null that output is a random walk in favor of the alternative that output is a stationary autoregressive process about a linear deterministic trend. The difference between the lack of persistence of output shocks either before WWII or over the entire century, on the one hand, and the strong signs of persistence of output shocks found by Campbell and Mankiw (1987) and by Nelson and Plosser (1982) for more recent periods is striking. It suggests to us a Keynesian interpretation of the large unit root in post-WWII U.S. output: perhaps post-WWII output shocks appear persistent because automatic stabilizers and other demand-management policies have substantially damped the transitory fluctuations that made up the pre-WWH Bums-Mitchell business cycle.

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Document Object Identifier (DOI): 10.3386/w2715

Published: Journal of Business, Vol. 64, No. 1, January 1991, pp.1-20. citation courtesy of

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