The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds

Preprint
Publisher Website
Google Scholar
    • preprint
      • Published in RePEc
Abstract
Much macroeconometric discussion has recently emphasised the economic significance of the size of the permanent component in GNP. Consequently, a large literature has developed that tries to estimate this magnitude - measured, essentially, as the spectral density of increments in GNP at frequency zero. This paper shows that unless the permanent component is a random walk this attention has been misplaced: in general, that quantity does not identify the magnitude of the permanent component. Further, by developing bounds on reasonable measures of this magnitude, the paper shows that a random walk specification is biased towards establishing the permanent component as important.
All Related Versions

This publication has 0 references indexed in Scilit: