Distilling co-movements from persistent macro and financial series

Arbeitspapier

We provide a methodology to disentangle the long-run relation between variables from their own dynamics. Macroeconomic and aggregate financial series have a high degree of inertia. If this persistence is not properly accounted for, spurious correlations will give rise to paradoxes. Our procedure shows that the Uncovered Interest Parity (UIP) puzzle evaporates when the dynamics are properly modelled: the forward premium loses all the predictive power that it seemed to have. We also show how the stock market grows in long cycles around a trend given by GDP, in a stable relation that does not break.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 525

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
• Subject: ACF-based GLS procedure ; Autocorrelation Function ; long memory ; Nonlinearities ; Uncovered Interest Parity anomaly ; Finanzsektor ; Zinsparität ; Theorie ; Autokorrelation ; Kleinste-Quadrate-Methode ; Wirkungsanalyse

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Abadir, Karim ; Talmain, Gabriel
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/152959
• Last update: 10.03.2025, 11:44 AM CET