THE DECOMPOSITION OF ECONOMIC RELATIONSHIPS BY TIME-SCALE USING WAVELETS - EXPENDITURE AND INCOME

Citation
Jb. Ramsey et C. Lampart, THE DECOMPOSITION OF ECONOMIC RELATIONSHIPS BY TIME-SCALE USING WAVELETS - EXPENDITURE AND INCOME, STUDIES IN NONLINEAR DYNAMICS AND ECONOMETRICS, 3(1), 1998, pp. 23-42
Citations number
35
Categorie Soggetti
Economics,"Social Sciences, Mathematical Methods
ISSN journal
10811826
Volume
3
Issue
1
Year of publication
1998
Pages
23 - 42
Database
ISI
SICI code
1081-1826(1998)3:1<23:TDOERB>2.0.ZU;2-9
Abstract
Economists have long known that time scale matters, in that the struct ure of decisions as to the relevant time horizon, degree of time aggre gation, strength of relationship, and even the relevant variables diff er by time scale. Unfortunately, until recently it was difficult to de compose economic time series into orthogonal time-scale components exc ept for the short and long run, in which the former is dominated by no ise. This paper uses wavelets to produce an orthogonal decomposition o f some economic variables by time scale over six different time scales . The relationship of interest is the permanent income hypothesis. We confirm that time-scale decomposition is very important for analyzing economic relationships and that a number of anomalies previously noted in the literature are explained by these means. The analysis indicate s the importance of recognizing variations in phase between variables when investigating the economic relationships.