Importance of Stochastic Properties of Economic Variables for Macroeconomic Theories

Stochastic properties are the basic determinants of behavior of economic variables. These properties are also important for construction of econometric models, interpretation of the findings and forecasting. So prior to any econometric study time series properties of variables have to be analyzed. Stochastic properties are also decisive for validity of many economic theories, including Fisher Hypothesis, Purchasing Power Parity, Consumption Based Asset Pricing Model, several monetary models and co-integration of international bond markets; those represent long run relationships between variables. This paper aims to put forward the importance of stochastic properties of economic variables for basic macroeconomic theories by giving special emphasis to real interest rates.