Persistence in Macroeconomic Time Series: Is it a Model Invariant Property?

Revista de Economia del Rosario, Vol. 4, No. 2, pp. 117-142, 2001

26 Pages Posted: 6 Sep 2006

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management

Abstract

This paper argues that persistence is not an invariant feature of a time series, but depends on the context in which the series is used: as the parameters of any dynamic model are defined relative to a particular information set, any change in the set of conditioning variables might affect the resulting estimates. We define persistence of a variable as the rate at which its autocorrelation function decays to zero, and show that inference about persistence of a variable is invariant to the addition of other conditioning variables only if those variables do not Granger-cause the variable of interest. Furthermore, we establish that measured persistence is a function of the model selected in a more fundamental way in the case of unstable systems. These findings suggest that, unless more restrictions derived from economic theory are imposed, issues such as the effectiveness of stabilisation policies cannot be settled empirically, and the debate between Keynesian and RBC theorists will remain inconclusive.

Keywords: Persistence, autocorrelation function, conditioning information set, probabilistic structure, dynamic models, Granger causality, cointegration

JEL Classification: C22, C32, E32

Suggested Citation

Caporale, Guglielmo Maria and Pittis, Nikitas, Persistence in Macroeconomic Time Series: Is it a Model Invariant Property?. Revista de Economia del Rosario, Vol. 4, No. 2, pp. 117-142, 2001, Available at SSRN: https://ssrn.com/abstract=928506

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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