Template-Type: ReDIF-Paper 1.0
Author-Name: Cathy Q. Ning
Author-X-Name-First: Cathy
Author-X-Name-Last: Ning
Author-Email: qning@ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Author-Name: Loran Chollete 
Author-X-Name-First: Loran
Author-X-Name-Last: Chollete
Author-Email: Loran.Chollete@nhh.no
Author-Workplace-Name: Faculty of Social Sciences, Department of Business Administration, University of Stavanger, Stavanger, Norway
Title: The Dependence Structure of Macroeconomic Variables in the US
Abstract: A central role for economic policy involves reducing the incidence of systemic downturns, when key economic variables experience joint extreme events. In this paper, we empirically analyze such dependence using two approaches, correlations and copulas. We document four findings. First, linear correlations and copulas disagree substantially about the nation’s dependence structure, indicating correlation complexity in the US economy. Second, GDP exhibits linear dependence with interest rates and prices, but no extreme dependence with the latter. This is consistent with the existence of liquidity
traps. Third, GDP exhibits asymmetric extreme dependence with employment, consumption and investment, with relatively greater dependence during downturns. Fourth, money is neutral, especially during extreme economic conditions. 
Classification-JEL: C14, E20, E30, E40 
Keywords: Asymmetric dependence; Copula; Correlation Complexity; Extreme Event;
Economic Policy; Money Neutrality; Systemic Downturn
Length: 40 pages
Creation-Date: 2009-11
Number: 005
File-URL: http://economics.ryerson.ca/workingpapers/wp005.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp005