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The First World War and the International Economy

Edited by Chris Wrigley

This book provides a fresh assessment of the impact of the First World War on the international economy. Leading academics offer new perspectives on the effects of the War on the long-term growth rates of the belligerent countries and examine its impact on individual sectors within these economies.
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Chapter 2: Recent developments in modelling trends and cycles in economic time series and their relevance to quantitative economic history

Terence C. Mills


Terence C. Mills 1. INTRODUCTION Economic historians interested in the quantitative examination of trends and cycles in long-run data such as industrial production, wage rates and price levels have, over the past few years, become increasingly acquainted with certain techniques of time series econometrics. Such techniques include, for example, unit root testing procedures, distinguishing between trend and difference stationary processes, modelling integrated and cointegrated processes, and formulating error correction mechanisms.1 For the purposes of the present chapter, we assume familiarity with the basic techniques of unit root and cointegration testing, and with the ideas of difference and linear trend stationarity. Our aim is to introduce some recently developed extensions to these ideas and techniques which we think are of potential relevance for economic historians and to illustrate these extensions with examples drawn from the literature on long-run economic growth, which will also provide insights into the impact of the two World Wars, particularly World War I, on output in the industrialized economies. 2. TRENDS OF MANY VARIETIES Researchers studying the growth and cyclical behaviour of industrialized economies are immediately faced with the problem of separating cyclical fluctuations from longer-term, or secular, movements. The difficulties in doing this are well appreciated by economists and economic historians alike, but the methods of trend and cycle decomposition often used are essentially ad hoc, designed primarily for ease of computation without real 34 Modelling trends and cycles in economic time series 35 regard for the statistical properties of the time series (or set...

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