Common trends and common cycles in per capita GDP : the case of the G7 Countries, 1870-2001

Narayan, Paresh Kumar 2008, Common trends and common cycles in per capita GDP : the case of the G7 Countries, 1870-2001, International advances in economic research, vol. 14, no. 3, pp. 280-290, doi: 10.1007/s11294-008-9162-y.

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Title Common trends and common cycles in per capita GDP : the case of the G7 Countries, 1870-2001
Author(s) Narayan, Paresh KumarORCID iD for Narayan, Paresh Kumar
Journal name International advances in economic research
Volume number 14
Issue number 3
Start page 280
End page 290
Publisher Springer Netherlands
Place of publication Amsterdam, The Netherlands
Publication date 2008-08
ISSN 1083-0898
Keyword(s) common trends
common cycles
permanent and transitory components
Summary In this paper we analyze per capita incomes of the G7 countries using the common cycles test developed by Vahid and Engle (Journal of Applied Econometrics, 8:341–360, 1993) and extended by Hecq et al. (Oxford Bulletin of Economics and Statistics, 62:511–532, 2000; Econometric Reviews, 21:273–307, 2002) and the common trend test developed by Johansen (Journal of Economic Dynamics and Control, 12:231–254, 1988). Our main contribution is that we impose the common cycle and common trend restrictions in decomposing the innovations into permanent and transitory components. Our main finding is permanent shocks explain the bulk of the variations in incomes for the G7 countries over short time horizons, and is in sharp contrast to the bulk of the recent literature. We attribute this to the greater forecasting accuracy achieved, which we later confirm through performing a post sample forecasting exercise, from the variance decomposition analysis.
Language eng
DOI 10.1007/s11294-008-9162-y
Field of Research 140305 Time-Series Analysis
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2008
Copyright notice ©2008, International Atlantic Economic Society
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