Time dependence of macro data

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Presentation transcript:

Time dependence of macro data Distinguish between: Stationary variables with a short time dependence, i.e. a low degree of time persistence, transitory effcts Nonstationary variables with long time dependence, i.e. high degree of time persistence, permanent effects.

What is the long run?

A stochastic formulation What is the meaning of a stochastic trend and a stochastic long cycle?

Illustrative example of how to measure a stochastic trend

Measuring a stochastic trend

The stochastic trend in inflation

The increments of a deterministic trend are constant over time The increments of a stochastic trend are random over time First and second order stochastic trends

The I(2) Scenario Defining autonomous shocks Theoretically Empirically Shocks shifting the AD curve Shocks shifting the AS curve

Assuming price homogeneity

A theory consistent scenario Inflation I(1) ?