The relative importance of permanent and transitory components: identification and some theoretical bounds

Quah, Danny (1991) The relative importance of permanent and transitory components: identification and some theoretical bounds. Financial Markets Group Discussion Papers (126). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

Much macroeconometric discussion has recently emphasized 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.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 1991 The Author
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	E - Macroeconomics and Monetary Economics > E0 - General > E00 - General C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
Date Deposited:	27 Apr 2007
Last Modified:	13 Sep 2024 19:33
URI:	http://eprints.lse.ac.uk/id/eprint/2333

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