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How great are the great ratios?

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Abstract:

The balanced growth and neoclassical stochastic growth literatures imply stationarity of certain macroeconomic 'great ratios'. Four such ratios are considered: consumption:output, investment:output, the real interest rate and real money supply growth, and evidence for ratio stationarity in the G7 countries is examined. Univariate unit root and stationarity tests are performed, and analysis of the cointegrating relations between output, consumption and investment is conducted. Almost no evidence of stationarity is found for the consumption:output and investment:output great ratios. Empirical evidence supports real money supply growth stationarity, but is more mixed for the real interest rate.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0003684022000015865

Affiliations: 1: Department of Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, UK 2: School of Economics, University of Nottingham, University Park, Nottingham, NG7 2RD, UK

Publication date: January 1, 2003

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