Paper abstract

Balanced growth and the great ratios: new evidence for the US and UK

(with Cliff Attfield)

Standard macroeconomic models suggest that the 'great ratios' of consumption to output and investment to output should be stable functions of structural parameters. We examine whether the ratios are stationary for the US and UK, allowing for structural breaks that could reflect time-varying parameters. We find stronger evidence for stationarity than previous work. We then use the long-run restrictions associated with the stationarity of the great ratios to extract measures of trend output from the joint behaviour of consumption, investment and output. This approach is attractive because it uses information from several series without requiring restrictive assumptions.

Download the 14 September 2006 version: trend14sep06all.pdf

A previous version of this paper circulated under the title Measuring trend output: how useful are the great ratios? This research was funded by ESRC award no. R000223760. See also Cliff Attfield (2003). Structural breaks and permanent trends. University of Bristol discussion paper no. 03/545.