Reassessing Unit Roots in Macro Variables: Evidence from Over 200 Years of Data across G7 Countries

Abstract

Leveraging a novel global macro database, we re-examine the stationarity of 40 macroeconomic variables across the G7 economies using over 200 years of data. We find robust evidence of mean reversion in the U.S. across key indicators, including various fiscal ratios, the current account and its GDP ratio, the unemployment rate, inflation, and interest rates, suggesting that shocks to these variables are transitory. While the U.S., U.K., Canada, and Germany exhibit widespread stationarity, France, Italy, and Japan display more persistent dynamics. These findings underscore significant cross-country heterogeneity and carry important implications for the design of effective fiscal and monetary policies.

Keywords: mean reversion, macro series, Unit root

JEL Classification: E10, E40, G10