Long Memory in UK Real GDP, 1851-2013: An ARFIMA-FIGARCH Analysis

19 Pages Posted: 28 Jun 2014

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Marinko Skare

Juraj Dobrila University of Pula

Date Written: June 2014

Abstract

This paper analyses the long-memory properties of both the conditional mean and variance of UK real GDP over the period 1851-2013 by estimating a multivariate ARFIMA-FIGARCH model (with the unemployment rate and inflation as explanatory variables). The results suggest that this series is non-stationary and non-mean-reverting, the null hypotheses of I(0), I(1) and I(2) being rejected in favour of fractional integration -- shocks appear to have permanent effects, and therefore policy actions are required to restore equilibrium. The estimate of the long-memory parameter (1.37) is similar to that reported by Candelon and Gil-Alana (2004), implying that aggregate output is not an I(1) process. The presence of long memory in output volatility (d=0.80) is also confirmed.

Keywords: ARFIMA-(FI)GARCH, Dual long memory, Volatility, Fractional impulse-response, Unemployment, Inflation

JEL Classification: B23, C14, C32, C53, C54

Suggested Citation

Caporale, Guglielmo Maria and Skare, Marinko, Long Memory in UK Real GDP, 1851-2013: An ARFIMA-FIGARCH Analysis (June 2014). DIW Berlin Discussion Paper No. 1395, Available at SSRN: https://ssrn.com/abstract=2459806 or http://dx.doi.org/10.2139/ssrn.2459806

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Marinko Skare

Juraj Dobrila University of Pula ( email )

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Croatia
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