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Trimmed Whittle estimation of the SVAR vs. filtering low-frequency fluctuations: applications to technology shocks

Author

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  • Lovcha Yuliya

    (Universitat Rovira-i-Virgili and CREIP, Av. Universitat 1, 43834Reus, Spain)

  • Perez-Laborda Alejandro

    (Universitat Rovira-i-Virgili and CREIP, Reus, Spain)

Abstract

This paper shows that the trimmed Whittle estimation of the SVAR is superior to filtering (or differencing) undesired, low-frequency fluctuations that may arise in macroeconomic data. Pre-filtering destroys the low-frequency range of the spectrum, thus biasing the estimated parameters and the responses of the variables to shocks. The proposed method, by contrast, accounts for the undesired fluctuations while overcoming these drawbacks. Furthermore, the method remains reliable even when the observed low-frequency variability has been incorrectly considered as external to the SVAR. An empirical application that examines the effect of technology shocks on hours worked is provided to illustrate the results. We find the response of hours positive and similar using both long and short-run identification restrictions, thus providing a solution to a wide debate in the business cycle literature.

Suggested Citation

  • Lovcha Yuliya & Perez-Laborda Alejandro, 2020. "Trimmed Whittle estimation of the SVAR vs. filtering low-frequency fluctuations: applications to technology shocks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(1), pages 1-18, February.
    • Handle: RePEc:bpj:sndecm:v:24:y:2020:i:1:p:18:n:4
    DOI: 10.1515/snde-2018-0030
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    More about this item

    Keywords

    band-pass; business cycle; frequency domain; Hodrick-Prescott; hours-worked; impulse response;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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