The unit root problem: Affinities between ergodicity and stationarity, its practical contradictions for central bank policy, and some consideration of alternative

Our initial focus in this paper is the problem of mismatch between policy goals and statistical analysis, based on how data is transformed and processed. This intrinsically raises ontological issues regarding the nature of an economy within which policy is made and to which statistical analysis is applied. These are of general significance to post Keynesians irrespective of the position they take on the specifics of the ergodicity debate. However, they involve some issues that overlap with some aspects of that debate. The problem as posed in this paper is specific and involves a practical contradiction regarding central bank policy and the problem of unit roots. We then consider some additional ways in which one can go beyond ‘common practice’ based on the example of Forward Guidance in the UK and a more institutional approach to post Keynesian analysis.