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Estimating the Permanent and Transitory Components of the UK Business Cycle

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  • T C Mills
  • P Wang
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    Abstract

    We estimate a model that incorporates two key features of business cycles, comovement among economic variables and switching between regimes of boom and slump, to quarterly UK data for the last four decades. Common permanent and transitory factors, interpreted as composite indicators of coincident variables, and estimates of turning points from one regime to the other, are extracted from the data by using the Kalman filter and maximum likelihood estimation. Both comovement and regime switching are found to be important features of the UK business cycle. The components produce sensible representations of the cycles and the estimated turning points agree fairly well with independently determined chronologies.

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    File URL: http://www.economicissues.org.uk/Files/2003/103aEstimatingthePermanentandTransitoryComponentsoftheUKBusinessCycle.pdf
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    Bibliographic Info

    Article provided by Economic Issues in its journal Economic Issues.

    Volume (Year): 8 (2003)
    Issue (Month): 1 (March)
    Pages: 1-14

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    Handle: RePEc:eis:articl:103mills

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    Cited by:
    1. Martha Misas & María Teresa Ramírez, . "Depressions in the Colombian Economic Growth Durng the XX Century: A Markov Switching Regime Model," Borradores de Economia 340, Banco de la Republica de Colombia.
    2. Narayan, Paresh Kumar, 2008. "Understanding the importance of permanent and transitory shocks at business cycle horizons for the UK," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(12), pages 2879-2888.

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