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The long range dependence paradigm for macroeconomics and finance

Henry, Marc; Zaffaroni, Paolo

The long range dependence paradigm appears to be a suitable description of the data generating process for many observed economic time series. This is mainly due to the fact that it naturally characterizes time series displaying a high degree of persistence, in the form of a long lasting effect of unanticipated shocks, yet exhibiting mean reversion. Whereas linear long range dependent time series models have been extensively used in macroeconomics, empirical evidence from financial time series prompted the development of nonlinear long range dependent time series models, in particular models of changing volatility. We discuss empirical evidence of long range dependence as well as the theoretical issues, both for economics and econometrics, such evidence has stimulated.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 0102-19
Published Here
March 22, 2011

Notes

March 2002