Are output fluctuations transitory or permanent? New evidence from a novel Global Multi-scale Modeling approach

Abstract

This paper provides new insights to the long-standing debate initiated by Nelson-Plosser (1982) regarding the mean reverting behaviour of real GDP per capita. The empirical analysis is based on wavelet framework introduced in Aydin and Pata Aydin (2020) which considers not only frequency domain along with time domain but also takes care of smooth structural changes ignored by earlier wavelet based unit root tests, and covers latest available data on 177 countries across the globe. Specifically, the countries are classified into seven different regions (East Asia and Pacific Region, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, North America, South Asia and Sub-Saharan Africa) as per guidelines of World Bank. The empirical findings yield interesting insights and several new lessons for practitioners and policy analysts.