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How big is the random walk in macroeconomic time series: Variance ratio tests

In: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays

Author

Listed:
  • A. G. Malliaris

    (Loyola University of Chicago, Chicago, IL 60611, USA)

  • Jorge L. Urrutia

    (Loyola University of Chicago, Chicago, IL 60611, USA)

Abstract

The paper applies the Lo and MacKinlay (1988) and Cochrane (1988) variance-ratio test to the data sample used by Nelson and Plosser (1982), who studies the stationarity properties of 14 macroeconomic variables. The results of our empirical tests indicate that the macroeconomic time series have significant random walk components, with the exception of unemployment, real wages, real per capita GNP and industrial production. These results generally agree with those reported earlier by Nelson and Plosser who found that 13 out of 14 macroeconomic variables followed random walk and with Cochrane who, more recently, found that GNP had a small random walk component. The contribution of this paper lies in its use of a very recent methodology to estimate the magnitude of the random walk component of certain macroeconomic time series.

Suggested Citation

  • A. G. Malliaris & Jorge L. Urrutia, 2005. "How big is the random walk in macroeconomic time series: Variance ratio tests," World Scientific Book Chapters, in: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays, chapter 2, pages 9-12, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812701015_0002
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    Cited by:

    1. Jiranyakul, Komain, 2007. "Behavior of Stock Market Index in the Stock Exchange of Thailand," MPRA Paper 45961, University Library of Munich, Germany.
    2. Ser‐Huang Poon, 1996. "Persistence and mean reversion in UK stock returns," European Financial Management, European Financial Management Association, vol. 2(2), pages 169-196, July.

    More about this item

    Keywords

    Asymptotic Economic Growth; Inflation; Interest Rates; Asset Pricing; Equity Markets; Foreign Currency; Monetary Policy; Crash;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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