Recent literature claims that key variables such as aggregate productivity and inflation display long memory dynamics. We study the implications of this high degree of persistence on the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. We show that long memory data produce...

Co-integration analysis tests for the existence of a significant long-run equilibrium among some economic variables. Standard econometric procedures to test for co-integration have proven unreliable when the long-run relation among the variables is characterized by non-linearities and persistent...