The Persistence of Shocks to Macroeconomic Time Series: Some Evidence From Economic Theory

This article presents new estimates of persistence of shocks to quarterly labor income, monthly treasury-bill yields, and annual real common-stock dividends. We replace orthogonality conditions involving near-unit-root instruments with restrictions on innovation variances implied by a generalized ve...

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Bibliographic Details
Published in:Journal of business & economic statistics 1996-04, Vol.14 (2), p.179-187
Main Authors: Cushing, Matthew J., McGarvey, Mary G.
Format: Article
Language:English
Subjects:
Difference stationary
Dividends
Economic models
Economic theory
Generalized method of moments
Hypotheses
Income
Income estimates
Macroeconomics
Orthogonality
Orthogonality condition
Permanent income hypothesis
Permanent value
Statistical discrepancies
Stock prices
Studies
Time series
Treasury bills
Trend stationary
Unit root
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Summary:This article presents new estimates of persistence of shocks to quarterly labor income, monthly treasury-bill yields, and annual real common-stock dividends. We replace orthogonality conditions involving near-unit-root instruments with restrictions on innovation variances implied by a generalized version of the permanent income hypothesis, a term-structure model, and constant-discount-rate efficient-markets model. Conditional on these theories, we obtain precise estimates of persistence without imposing arbitrary restrictions on the magnitude of the largest root. Shocks are more persistent than indicated by unrestricted trend-stationary models but less persistent than implied by unit-root models.
ISSN:0735-0015
1537-2707
DOI:10.1080/07350015.1996.10524644