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Long Memory in UK Real GDP, 1851-2013: An ARFIMA-FIGARCH Analysis

Discussion Papers 1395, 15 S.

Guglielmo Maria Caporale, Marinko Skare


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This paper analyses the long-memory properties of both the conditional mean and variance of UK real GDP over the period 1851-2013 by estimating a multivariate ARFIMA-FIGARCH model (with the unemployment rate and inflation as explanatory variables). The results suggest that this series is non-stationary and non-mean-reverting, the null hypotheses of I(0), I(1) and I(2) being rejected in favour of fractional integration - shocks appear to have permanent effects, and therefore policy actions are required to restore equilibrium. The estimate of the long-memory parameter (1.37) is similar to that reported by Candelon and Gil-Alana (2004), implying that aggregate output is not an I(1) process. The presence of long memory in output volatility (d = 0.80) is also confirmed.

JEL-Classification: B23;C14;C32;C53;C54
Keywords: ARFIMA-(FI)GARCH, Dual long memory, Volatility, Fractional impulse-response, Unemployment, Inflation
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