Working Paper: NBER ID: w2716
Authors: J. Bradford De Long; Lawrence H. Summers
Abstract: We use the revised estimates of U.S. GNP constructed by Christina Romer (1989) to assess the time-series properties of U.S. output per capita over the past century. We reject at conventional significance levels the null that output is a random walk in favor of the alternative that output is a stationary autoregressive process about a linear deterministic trend. The difference between the lack of persistence of output shocks either before \\VWII or over the entire century, on the one hand, and the strong signs of persistence of output shocks found by Campbell and Mankiw (1987) and by Nelson and Plosser (1982) for more recent periods is striking. It suggests to us a Keynesian interpretation of the large unit root in post-WWII U.S. output: perhaps post-WWII output shocks appear persistent because automatic stabilizers and other demand-management policies have substantially damped the transitory fluctuations that made up the pre-WWH Bums-Mitchell business cycle.
Keywords: Unit Root; GNP; Macroeconomic Fluctuations; Keynesian Economics
JEL Codes: E32; C22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| output shocks (E39) | presence of unit roots in output (C22) |
| economic policies post-WWII (E64) | persistence of output shocks (E32) |
| absence of transitory components in post-WWII data (N11) | Keynesian interpretation (E12) |
| rejection of random walk null hypothesis (C52) | stationary autoregressive process (C22) |
| long historical data series (Y10) | easier identification of transitory components (E32) |
| institutional and policy changes (O17) | change in the structure of economic shocks (L16) |
| post-WWII output shocks (E23) | dampened transitory fluctuations (E32) |