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Trend-Cycle Decompositions and Measures of Persistence: Does Time Aggregation Matter?

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  • Lippi, Marco
  • Reichlin, Lucrezia

Abstract

This paper shows that temporal aggregation affects estimates of trend-cycle variances and of persistence of shocks to economic variables. The authors analyze UCARIMA models with orthogonal components and show two results. First, they prove that when the decay rates of the autocovariance functions of the trend and the cycle are almost equal, temporal aggregation causes an increase in the trend-cycle variance ratio. Second, the authors show that temporal aggregation may increase or decrease the size of the persistence measure depending on the dynamic shape of the two components in the basic process. Copyright 1991 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 101 (1991)
Issue (Month): 405 (March)
Pages: 314-23

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Handle: RePEc:ecj:econjl:v:101:y:1991:i:405:p:314-23

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Cited by:
  1. Aadland, David, 2005. "Detrending time-aggregated data," Economics Letters, Elsevier, vol. 89(3), pages 287-293, December.
  2. Pierse, R. G. & Snell, A. J., 1995. "Temporal aggregation and the power of tests for a unit root," Journal of Econometrics, Elsevier, vol. 65(2), pages 333-345, February.

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