Great Ratios and Common Cycles: Do They Exist for the UK?
This paper investigates the dynamic interactions between postwar, quarterly UK consumption, investment and income within a VAR framework. Use is made of two developments that allow sets of restrictions to be tested and imposed, and which potentially make the VAR framework much more economically interpretable. One set is placed by neoclassical growth theory and involves the presence of common stochastic trends linking the secular movement of the series (i.e. the great ratios), while the other set is placed by notions of common, or more generally, codependent cycles that have their origin in ideas of comovements between growth rates. Evidence is found to support the existence of the great ratios for the UK, and evidence is also found of a codependent cycle of order one in the growth rates of consumption, investment and income, so that although the cycles are not exactly synchronized, the response of the three growth rates to a shock will be similar from two quarters after the shock has occurred. Moreover, it is lagged consumption shocks that are primarily driving the cycle. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research
Year of publication: |
2001
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Authors: | Mills, Terence C |
Published in: |
Bulletin of Economic Research. - Wiley Blackwell. - Vol. 53.2001, 1, p. 35-51
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Publisher: |
Wiley Blackwell |
Saved in:
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