International Evidence on the Size of the Random Walk in Output

Abstract

This paper contributes three extensions of Cochrane's work on measuring the relative stability of long-term growth. It estimates variance ratios for nine OECD countries over the period 1871-1985, presents an improved approximation to the distribution of the variance ratio, and considers the comovements of long growth cycles across countries. The evidence indicates that the relative stability of long-term growth found by Cochrane is unique to the United States. Relative to the United States, most countries have more variable dynamics at low frequencies and smoother dynamics at frequencies traditionally associated with business cycles.