Multivariate Fractional Cointegration and GDP Convergence

Abstract

Plant and firm level growth rates exhibit significant fat-tailed behavior. I show that these tails still exist after conditioning on some standard explanatory variables like the age and size of a plant, and that the resultant distributions are well-described by a Laplace distribution. I then simulate a simple model which relaxes the standard central limit theorem by allowing for random numbers of random shocks.

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