Working Paper: NBER ID: w2450
Authors: Danny Quah
Abstract: It is often argued that the presence of a unit root in aggregate output implies that there is no "business cycle": the economy does not return to trend following a disturbance. This paper makes this notion precise, but then develops a simple aggregative model where this relation is contradicted. In the model output both has a unit root, and displays repeated short-run fluctuations around a deterministic trend. Some summary statistical evidence is presented that suggests the phenomena described in the paper is not without empirical basis.
Keywords: Unit roots; Business cycles; Macroeconomic time series
JEL Codes: C22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| presence of unit roots (C22) | no business cycle (E32) |
| presence of unit roots (C22) | infinite average cycle length (C69) |
| presence of unit roots (C22) | lack of cyclical behavior (E32) |
| unit root process (C22) | fluctuations around trend (E32) |
| business cycles (E32) | fluctuations around trend (E32) |
| presence of unit roots (C22) | nuanced relationship with business cycles (E32) |