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On the Non-Equilibrium Density of Geometric Mean Reversion
Zhaojun Yang Hunan University - School of Economics and Trade Christian-Oliver Ewald Center for Dynamic Macroeconomic Analysis, University of St. Andrews, School of Economics and Finance; University of Sydney, School of Mathematics and Statistics Abstract: Geometric mean reversion plays a fundamental role in economic dynamic models. While it is known, at least since Merton (1975) [9], that the equilibrium distribution of geometric mean reversion is a Gamma distribution, an explicit expression for the non-equilibrium distribution has not been known. In this article we compute the probability density function of X(t) where X(ยท) represents a general geometric mean reversion process.
Keywords: Geometric mean reversion, non-equilibrium analysis, economic dynamics, econometrics JEL Classifications: C16, C63, E22, G31 Working Paper SeriesDate posted: January 21, 2008 ; Last revised: April 14, 2008Suggested CitationContact Information
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