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The adequacy of the traditional Econometric approach to non-linear Cycles

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  • Luís Aguiar-Conraria

    (University of Minho)

Abstract

To show that the traditional econometric approach is not able to deal with deterministic chaos, I use an extension of Goodwin's growth cycle model to generate artificial data for output. An EGARCH model is estimated to describe the data generation process. Although, using some traditional econometric tests, no evidence of misspecification is found, the estimated process is qualitatively wrong: it is dynamically stable when the true process is unstable. A specific econometric procedure developed to deal with deterministic chaos is presented: the BDS statistics. Also an explanation for the little evidence of deterministic chaos in aggregated macroeconomic time series is suggested.

Suggested Citation

  • Luís Aguiar-Conraria, 2003. "The adequacy of the traditional Econometric approach to non-linear Cycles," Notas Económicas, Faculty of Economics, University of Coimbra, issue 17, pages 70-83, June.
    • Handle: RePEc:gmf:journl:y:2003:i:17:p:70-83
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    References listed on IDEAS

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    1. Brock, W. A., 1986. "Distinguishing random and deterministic systems: Abridged version," Journal of Economic Theory, Elsevier, vol. 40(1), pages 168-195, October.
    2. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
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