Stationary Processes That Look Like Random Walks— The 
Bounded Random Walk Process in Discrete and Continuous Time

Nicolau, João

doi:10.1017/s0266466602181060

Cited by 82 publications

(33 citation statements)

References 19 publications

(13 reference statements)

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“…KPSS is the KPSS test of Kwiatkowski et al (1992 is a participation rate. This sensitivity analysis is motivated by the econometric criticism that a variable that is bounded between zero and one -such as the participation rate -strictly speaking cannot be a linear unit-root process with an additive error term fulfilling standard assumptions; see, for example, Nicolau (2002). The transformed variable t p , on the other hand, is unbounded above and below and one therefore does not have to say that the unit-root assumption relies on approximations.…”

Section: Empirical Findingsmentioning

confidence: 99%

Labor-force participation rates and the informational value of unemployment rates: Evidence from disaggregated US data

Gustavsson

Österholm

2012

Economics Letters

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The informational value of the aggregate US unemployment rate has recently been questioned because of a unit root in the labor-force participation rate; the lack of mean reversion implies that long-run changes in unemployment rates are highly unlikely to reflect long-run changes in joblessness. This paper shows that this critique also extends to unemployment rates for sub-populations, such as prime-aged males.JEL Classification: C22, E24, J21

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Section: Empirical Findingsmentioning

confidence: 99%

Labor-force participation rates and the informational value of unemployment rates: Evidence from disaggregated US data

Gustavsson

Österholm

2012

Economics Letters

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“…Private nominal interest rates are in a similar range today, an outcome that would be virtually impossible if interest rates possessed a unit 1 Because nominal interest rates are bounded downward, they cannot strictly be a linear unit-root process with an additive error term ful…lling standard assumptions (Nicolau, 2002). However, the approximation error from making such an assumption is likely to be negligible, and other bounded variables, such as unemployment rates, are often treated as possessing a unit root for this reason.…”

Section: Introductionmentioning

confidence: 99%

Testing the expectations hypothesis when interest rates are near integrated

Beechey

Hjalmarsson

Österholm

2009

Journal of Banking & Finance

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Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in ten of the fourteen countries we consider, and the cointegrating vector is similar across countries. However, the parameters di¤er from those suggested by theory. We relate our …ndings to existing literature on the failure of the expectations hypothesis and to the role of term premia.

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“…One of possible way of modeling might be a mean-reverting unit root process: when unemployment rate goes very high, it will tend to go down very soon. This set-up has been analyzed for exchange rate dynamics in Nicolau (2002). We do not choose this process because our focus is on using inflation expectation data and we simplify the filtering problem.…”

Section: Discussionmentioning

confidence: 99%

Estimation of NAIRU with Inflation Expectation Data

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Estimating natural rate of unemployment (NAIRU) is important for understanding the joint dynamics of unemployment, inflation, and inflation expectation. However, existing literature falls short in endogenizing inflation expectation together with NAIRU in a model consistent way. We develop and estimate a structural model with forward and backward looking Phillips curve. Inflation expectation is treated as a function of state variables and we use survey data as its observations. We find out that the estimated NAIRU using our methodology tracks the unemployment process closely except for the high inflation period around 1970. Moreover, the estimated Bayesian credible sets are narrower and our model leads to better inflation and unemployment forecasts. These results suggest that monetary policy was very effective during the sample periods and there was not much room for policy improvement. Terms of use: Documents in

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Stationary Processes That Look Like Random Walks— The Bounded Random Walk Process in Discrete and Continuous Time

Cited by 82 publications

References 19 publications

Labor-force participation rates and the informational value of unemployment rates: Evidence from disaggregated US data

Labor-force participation rates and the informational value of unemployment rates: Evidence from disaggregated US data

Testing the expectations hypothesis when interest rates are near integrated

Estimation of NAIRU with Inflation Expectation Data

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