ABSTRACT

The conclusion of Chapter 6 was that if our data is not weakly dependent then our OLS estimators may be seriously biased. In fact it may be the case that the regression results are spurious. Does that mean that in running our steady-state Solow model for Argentina we were making a mistake? That is the subject of this chapter. To explain our analysis, we adopt a simple macro model of inflation and growth before returning to the Solow model of the previous chapter.