Nelson–Plosser revisited: The ACF approach

We detect a new stylized fact that is common to the dynamics of all macroeconomic series, including financial aggregates. Their Auto-Correlation Functions (ACFs) share a common four-parameter functional form that arises from the dynamics of a general equilibrium model with heterogeneous firms. We fi...

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Veröffentlicht in:Journal of econometrics 2013-07, Vol.175 (1), p.22-34
Hauptverfasser: Abadir, Karim M., Caggiano, Giovanni, Talmain, Gabriel
Format: Artikel
Sprache:eng
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Zusammenfassung:We detect a new stylized fact that is common to the dynamics of all macroeconomic series, including financial aggregates. Their Auto-Correlation Functions (ACFs) share a common four-parameter functional form that arises from the dynamics of a general equilibrium model with heterogeneous firms. We find that, not only does our formula fit the data better than the ACFs that arise from auto-regressive and fractionally-integrated models, but it also yields the correct shape of the ACF, thus explaining the lags with which macroeconomic variables evolve and the onset of seemingly-sudden turning points. This finding puts a premium on quick and decisive macroeconomic policy interventions at the first signs of a turning point, in contrast to gradualist approaches.
ISSN:0304-4076
1872-6895
DOI:10.1016/j.jeconom.2013.02.006