Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336550 
Year of Publication: 
2026
Publisher: 
ResearchGate, Berlin
Abstract: 
It is well established that the U.S. prewar output was more volatile and less shock persistent than the postwar output. This is often attributed to the data interpolation employed to construct the prewar series. Our analytical results, however, indicate that commonly used linear interpolation has the opposite effect on shock persistence and volatility of a series-it increases shock persistence and reduces volatility. The surprising implication of this finding is that the actual differences between the volatility and shock persistence of the prewar and postwar output series are likely greater than the existing literature recognizes, and interpolation has dampened rather than magnified this difference. Consequently, the view that postwar output was more stable than prewar output because of the effectiveness of the postwar stabilization policies and institutional changes has considerable merit. Our results hold for parsimonious stationary and nonstationary time series commonly used to model macroeconomic time series.
Subjects: 
Business Cycles
Output Volatility
Shock Persistence
Prewar US Output
Postwar US Output
Prewar vs Poswar US Output Series
Linear Interpolation
Variance Ratio
Stationary Time Series
Nonstationary Time Series
Periodicity
Periodic Nonstationarity
Missing Observations
Macroeconomic Stabilization
Economic Policy
JEL: 
E32
E01
N10
C02
C18
C22
C82
Persistent Identifier of the first edition: 
Creative Commons License: 
Document Type: 
Working Paper

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