Nelson-Plosser Revisited: The ACF Approach

31 Pages Posted: 13 Jan 2012 Last revised: 26 Feb 2012

See all articles by Karim M. Abadir

Karim M. Abadir

Imperial College Business School

Giovanni Caggiano

Department of Economics, Monash University; University of Padua

Gabriel Talmain

University of York - Department of Economics and Related Studies

Date Written: January 13, 2012

Abstract

We detect a new stylized fact that is common to the dynamics of all macroeconomic series, including financial aggregates. Their Auto-Correlation Functions (ACFs) share a common four-parameter functional form that arises from the dynamics of a general equilibrium model with heterogeneous firms. We find that, not only does our formula fit the data better than the ACFs that arise from autoregressive models, but it also yields the correct shape of the ACF, thus explaining the lags with which macroeconomic variables evolve and the onset of seemingly-sudden turning points. This finding puts a premium on quick and decisive macroeconomic policy interventions at the first signs of a turning point, in contrast to gradualist approaches.

JEL Classification: C22, E32, E52, E63

Suggested Citation

Abadir, Karim M. and Caggiano, Giovanni and Talmain, Gabriel, Nelson-Plosser Revisited: The ACF Approach (January 13, 2012). Available at SSRN: https://ssrn.com/abstract=1984836 or http://dx.doi.org/10.2139/ssrn.1984836

Karim M. Abadir (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://www3.imperial.ac.uk/portal/page?_pageid=61,629646&_dad=portallive&_schema=PORTALLIVE

Giovanni Caggiano

Department of Economics, Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://sites.google.com/site/giovannicaggiano72/CV/home

University of Padua ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

Gabriel Talmain

University of York - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

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