The time series literature reports two stylized facts about output dynamics in the United States. GNP growth is positively autocorrelated over short horizons and negatively autocorrelated over longer horizons, and GNP has an important trend reverting component which has a hump-shaped moving...

This paper studies the effects of applying the Hodrick-Prescott filter to trend and difference stationary time series. Applying the Hodrick-Prescott filter to an integrated process is similar to detrending a random walk. When the data are difference stationary, the Hodrick-Prescott filter can...

Real output is strongly correlated with the short-term nominal rate of interest. However, standard models of aggregate demand suggest that real output should be correlated with an expected long-term real rate of interest. We argue that the observed output-nominal rate correlation is an artifact...

This paper examines the speed with which abnormal economic profits (that is, profits greater than or less than required to compensate for the real opportunity cost of capital including risk) vanish in the U.S. banking industry. Positive economic profits arise from random "good luck," or from...