Abstract
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.
Original language | English (US) |
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Pages (from-to) | 179-187 |
Number of pages | 9 |
Journal | Journal of Business and Economic Statistics |
Volume | 14 |
Issue number | 2 |
DOIs | |
State | Published - Apr 1996 |
Keywords
- Difference stationary
- Generalized method of moments
- Orthogonality condition
- Permanent value
- Trend stationary
- Unit root
ASJC Scopus subject areas
- Statistics and Probability
- Social Sciences (miscellaneous)
- Economics and Econometrics
- Statistics, Probability and Uncertainty