Interpolation and Shock Persistence of Prewar U.S. Macroeconomic Time Series: A Reconsideration

26 Pages Posted: 6 Apr 2022

See all articles by Hashem Dezhbakhsh

Hashem Dezhbakhsh

Emory University - Department of Economics

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Centre for Economic Analysis; International Centre for Economic Analysis; International School of Economics at Tbilisi State University

Date Written: March 17, 2022

Abstract

The U.S. prewar output series exhibit smaller shock-persistence than postwar-series. Some studies suggest that this may be due to linear interpolation used to generate missing prewar data. Monte Carlo simulations that support this view generate large standard-errors, making such inference imprecise. We assess analytically the effect of linear interpolation on a nonstationary process. We find that interpolation indeed reduces shock-persistence, but the interpolated series can still exhibit greater shock-persistence than a pure random walk. Moreover, linear interpolation makes the series periodically nonstationary, with parameters of the data generating process and the length of the interpolation time-segments affecting shock-persistence in conflicting ways.

Keywords: Linear Interpolation, Random Walk, Shock-Persistence, Nonstationary series, Periodic nonstationarity, Stationary series, Prewar US Time Series

JEL Classification: C01, C02, E01, E30, N10

Suggested Citation

Dezhbakhsh, Hashem and Levy, Daniel, Interpolation and Shock Persistence of Prewar U.S. Macroeconomic Time Series: A Reconsideration (March 17, 2022). Economics Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4063243

Hashem Dezhbakhsh

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
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Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
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+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

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Rich Building
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United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/biography/levy-daniel.html

Rimini Centre for Economic Analysis ( email )

Rimini
Italy

HOME PAGE: http://https://www.rcea.world/

International Centre for Economic Analysis ( email )

Wilfrid Laurier University
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Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://https://iceanet.org/

International School of Economics at Tbilisi State University ( email )

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Tbilisi, 0108
Georgia

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