NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unit Roots in Macroeconomic Time Series: Some Critical Issues

Bennett T. McCallum

NBER Working Paper No. 4368 (Also Reprint No. r1816)
Issued in September 1993
NBER Program(s):   EFG   ME

This paper suggests that the relevant question concerning unit root' in the U.S. real GNP time series pertains to the relative importance of difference-stationary and trend-stationary components. Various analytical approaches indicate than an accurate answer is not obtainable with existing data. The paper next considers whether trending series should be differences prior to use in regression analysis and suggests it may not matter greatly if autocorrelated residuals are avoided. Finally, the paper argues that the absence of cointegration among variables does not imply the absence of any practically useful long-run relationship.

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Published: Economic Quarterly, Federal Reserve Bank of Richmond, Vol. 79, No. 2, pp. 13-44, (Spring 1993).

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