The unit root problem: Affinities between ergodicity and stationarity, its practical contradictions for central bank policy, and some consideration of alternatives. Issue 3 (3rd July 2018)

• Record Type: Journal Article
• Authors: Nasir, Muhammad Ali; Morgan, Jamie
• Is Part Of: Journal of post Keynesian economics. Volume 41:Issue 3(2018)
• Page Start: 339
• Page End: 363
• Publication Date: 2018-07-03
• Subjects: Central bank policy -- ergodicity -- forward guidance -- stationarity -- unit root; E58 -- C10 -- B41; 330.15
• DOI: 10.1080/01603477.2017.1387060
• Languages: English
• ISSNs: 0160-3477

Abstract

ABSTRACT: The initial focus in this article is the problem of mismatch between policy goals and statistical analysis, based on how data is transformed and processed. This intrinsically raises ontological issues regarding the nature of an economy within which policy is made and to which statistical analysis is applied. These are of general significance to post Keynesians irrespective of the position they take on the specifics of the ergodicity debate. However, they involve some issues that overlap with some aspects of that debate. The problem as posed in this article is specific and involves a practical contradiction regarding central bank policy and the problem of unit roots. The authors then consider some additional ways in which one can go beyond common practice based on the example of Forward Guidance in the United Kingdom and a more institutional approach to post Keynesian analysis.