We thank the editor and the anonymous referees for helpful comments, but the responsibility for erros is entirely the authors'. We also acknowledge support from the National Science Foundation under grant SES-9818789. Abstract We hope to be able to provide answers to the following questions: 1) Has there been a structural break in postwar U.S. real GDP… (More)
The authors acknowledge with thanks support from the National Science Foundation under grants SES-9818789 and SBR-9711301 and from the Van Voorhis and Ensley endowments at the University of Washington. We received helpful comments from many individuals and particularly Abstract––This paper reconciles two widely-used decompositions of GDP into trend and… (More)
Van Voorhis endowment at the University of Washington. We thank the editor and the anonymous referee for helpful comments, but the responsibility for erros is entirely the authors'.
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Recent tests using long data series find evidence in favor of long-run PPP. These tests may have reached the wrong conclusion. Using artificial data calibrated to nominal exchange rates and disaggregated data on prices, we show that tests on long-run PPP have serious size biases. In the baseline case, unit root and cointegration tests with a nominal size of… (More)
Several recent papers conclude that U.S. real GDP is trend stationary, implying that all shocks are transitory and the long run path is deterministic. These inferences fail to take into account two problems: the distortion of test size in finite samples due to data-based model selection, and the fragility of unit root tests in the face of plausible… (More)
This paper investigates whether evidence for a positive relationship between stock market volatility and the equity premium is more decisive when the volatility feedback effects of large and persistent changes in market volatility are taken into account. The analysis has two components. First, a log– linear present value framework is employed to derive a… (More)
It is now well known that standard asymptotic inference techniques for instrumental variable estimation perform very poorly in the presence of weak instruments. Specifically, standard asymptotic techniques give spuriously small standard errors, leading investigators to accept apparently tight confidence regions which unfortunately may be very far from the… (More)