Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Working Paper

The Sources and Nature of Long-Term Memory in the Business Cycle

Download pdf
This paper examines the stochastic properties of aggregate macroeconomic time series from the standpoint of fractionally integrated models, focusing on the persistence of economic shocks. We develop a simple macroeconomic model that exhibits long-range dependence, a consequence of aggregation in the presence of real business cycles. We then derive the relation between properties of fractionally integrated macroeconomic time series and those of microeconomic data and discuss how fiscal policy may alter the stochastic behavior of the former. To implement these results empirically, we employ a test for fractionally integrated time series based on the Hurst-Mandelbrot rescaled range. This test, which is robust to short-term dependence, is applied to quarterly and annual real GNP to determine the sources and nature of long-term dependence in the business cycle.
11.01.1991ISSN 2573-7953 WP 91-16DOI 10.26509/frbc-wp-199116

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Haubrich, Joseph G., and Andrew Lo. 1991. “The Sources and Nature of Long-Term Memory in the Business Cycle.” Federal Reserve Bank of Cleveland, Working Paper No. 91-16. https://doi.org/10.26509/frbc-wp-199116