Kitov, Ivan and Kitov, Oleg and Dolinskaya, Svetlana (2007): Modelling real GDP per capita in the USA: cointegration test.

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Abstract
A twocomponent model for the evolution of real GDP per capita in the USA is presented and tested. The first component of the GDP growth rate represents an economic trend and is inversely proportional to the attained level of real GDP per capita itself, with the nominator being constant through time. The second component is responsible for fluctuations around the economic trend and is defined as a half of the growth rate of the number of 9yearolds. This nonlinear relationship between the growth rate of real GDP per capita and the number of 9yearolds in the USA is tested for cointegration. For linearization of the problem, a predicted population time series is calculated using the original relationship. Both single year of age population time series, the measured and predicted one, are shown to be integrated of order 1 – the original series have unit roots and their first differences have no unit root. The EngelGranger approach is applied to the difference of the measured and predicted time series and to the residuals or corresponding linear regression. Both tests show the existence of a cointegrating relation. The Johansen test results in the cointegrating rank 1. Since a cointegrating relation between the measured and predicted number of 9yearolds does exist, the VAR, VECM, and linear regression are used in estimation of the goodness of fit and root meansquare errors, RMSE. The highest R2=0.95 and the best RMSE is obtained in the VAR representation. The VECM provides consistent, statistically reliable, and significant estimates of the coefficient in the cointegrating relation. Econometrically, the tests for cointegration show that the deviations of real economic growth in the USA from the economic trend, as defined by the constant annual increment of real per capita GDP, are driven by the change in the number of 9yearolds.
Item Type:  MPRA Paper 

Institution:  IDG RAS 
Original Title:  Modelling real GDP per capita in the USA: cointegration test 
Language:  English 
Keywords:  GDP per capita; population estimates; cointegration; VAR; VECM; USA 
Subjects:  O  Economic Development, Technological Change, and Growth > O4  Economic Growth and Aggregate Productivity > O42  Monetary Growth Models E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods; Simulation Methods O  Economic Development, Technological Change, and Growth > O5  Economywide Country Studies > O51  U.S.; Canada E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations; Cycles 
Item ID:  2739 
Depositing User:  Ivan Kitov 
Date Deposited:  15. Apr 2007 
Last Modified:  13. Feb 2013 11:17 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/2739 