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Great Ratios and Common Cycles: Do They Exist for the UK?

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  • Mills, Terence C

Abstract

This paper investigates the dynamic interactions between postwar, quarterly UK consumption, investment and income within a VAR framework. Use is made of two developments that allow sets of restrictions to be tested and imposed, and which potentially make the VAR framework much more economically interpretable. One set is placed by neoclassical growth theory and involves the presence of common stochastic trends linking the secular movement of the series (i.e. the great ratios), while the other set is placed by notions of common, or more generally, codependent cycles that have their origin in ideas of comovements between growth rates. Evidence is found to support the existence of the great ratios for the UK, and evidence is also found of a codependent cycle of order one in the growth rates of consumption, investment and income, so that although the cycles are not exactly synchronized, the response of the three growth rates to a shock will be similar from two quarters after the shock has occurred. Moreover, it is lagged consumption shocks that are primarily driving the cycle. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

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  • Mills, Terence C, 2001. "Great Ratios and Common Cycles: Do They Exist for the UK?," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 35-51, January.
    • Handle: RePEc:bla:buecrs:v:53:y:2001:i:1:p:35-51
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    Cited by:

    1. Ivan D. Trofimov, 2017. "Capital Productivity In Industrialised Economies: Evidence From Error-Correction Model And Lagrange Multiplier Tests," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 62(215), pages 53-80, October –.
    2. M.S.Rafiq, 2006. "Business Cycle Moderation - Good Policies or Good Luck: Evidence and Explanations for the Euro Area," Discussion Paper Series 2006_21, Department of Economics, Loughborough University.
    3. Kapetanios, George & Millard, Stephen & Price, Simon & Petrova, Katerina, 2018. "Time varying cointegration and the UK Great Ratios," Essex Finance Centre Working Papers 23320, University of Essex, Essex Business School.
    4. Arjun & Bibhuti Ranjan Mishra, 2024. "Testing the Balanced Growth Hypothesis in the Presence of Structural Breaks: Evidence from Developed and Developing Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2024(1), pages 1-35.
    5. Attfield, Cliff & Temple, Jonathan R.W., 2010. "Balanced growth and the great ratios: New evidence for the US and UK," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 937-956, December.
    6. Cliff L.F. Attfield & Jonathan R.W. Temple, 2003. "Measuring trend output: how useful are the Great Ratios?," Bristol Economics Discussion Papers 03/555, School of Economics, University of Bristol, UK.
    7. Trofimov, Ivan D., 2017. "Capital productivity in industrialized economies: evidence from error-correction model and Lagrange Multiplier tests," MPRA Paper 81655, University Library of Munich, Germany.
    8. Jonathan Temple & Cliff Attfield, 2004. "Measuring trend growth: how useful are the great ratios?," Money Macro and Finance (MMF) Research Group Conference 2003 101, Money Macro and Finance Research Group.
    9. Mills, Terence C. & Crafts, Nicholas F. R., 2004. "Sectoral output trends and cycles in Victorian Britain," Economic Modelling, Elsevier, vol. 21(2), pages 217-232, March.

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