The importance of shocks to aggregate demand

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a. What is the difference between trend-stationary and difference-stationary processes?

b. Why is this an important distinction, and how does our belief regarding which of these best characterizes output affect our forecasting strategy?

c. Perron suggested that output might best be characterized as trend stationary with breaks. How does this help resolve the question of the importance of shocks to aggregate demand?

Reference no: EM131140012

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