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Interpolation and Shock Persistence of Prewar U.S. Macroeconomic Time Series: A Reconsideration

Author

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  • Daniel Levy

    (Bar-Ilan University)

  • Hashem Dezhbakhsh

Abstract

The U.S. prewar output series exhibit smaller shock-persistence than postwar-series. Some studies suggest this may be due to linear interpolation used to generate missing prewar data. Monte Carlo simulations that support this view generate large standard-errors, making such inference imprecise. We assess analytically the effect of linear interpolation on a nonstationary process. We find that interpolation indeed reduces shock-persistence, but the interpolated series can still exhibit greater shock-persistence than a pure random walk. Moreover, linear interpolation makes the series periodically nonstationary, with parameters of the data generating process and the length of the interpolation time-segments affecting shock-persistence in conflicting ways.

Suggested Citation

  • Daniel Levy & Hashem Dezhbakhsh, 2022. "Interpolation and Shock Persistence of Prewar U.S. Macroeconomic Time Series: A Reconsideration," Working Papers 2022-02, Bar-Ilan University, Department of Economics.
    • Handle: RePEc:biu:wpaper:2022-02
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    More about this item

    Keywords

    Linear Interpolation; Random Walk; Shock-Persistence; Nonstationary series; Periodic nonstationarity; Stationary series; Prewar US Time Series;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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