Trend-Cycle Decompositions with Correlated Components
AbstractThis paper raises some interpretative issues that arise from univariate trend-cycle decompositions with correlated disturbances. In particular, it discusses whether the interpretation of a negative correlation as providing evidence for the prominence of real, or supply, shocks, can be supported. For this purpose it determines the conditions under which correlated components may originate from the underestimation of the cyclical component in an orthogonal decomposition; from the presence of a growth rate cycle, rather than a deviation cycle; or alternatively, as a consequence of the hysteresis phenomenon. Finally, it considers interpreting correlated components in terms of permanent-transitory decompositions, where the permanent component has richer dynamics than a pure random walk. The consequences for smoothing and signal extraction are discussed: in particular, it is documented that a negative correlation implies that future observations carry most of the information needed to assess cyclical stance. As a result, the components will be subject to underestimation in real time and thus to high revisions. The overall conclusion is that the characterization of economic fluctuations in macroeconomic time series largely remains an open issue.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Econometric Reviews.
Volume (Year): 25 (2006)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.tandfonline.com/LECR20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Luati, Alessandra & Proietti, Tommaso, 2012.
"Maximum likelihood estimation of time series models: the Kalman filter and beyond,"
02 BAWP, University of Sydney Business School, Discipline of Business Analytics.
- Tommaso, Proietti & Alessandra, Luati, 2012. "Maximum likelihood estimation of time series models: the Kalman filter and beyond," MPRA Paper 39600, University Library of Munich, Germany.
- Tommaso Proietti, 2009.
"The Multistep Beveridge-Nelson Decomposition,"
EERI Research Paper Series
EERI_RP_2009_24, Economics and Econometrics Research Institute (EERI), Brussels.
- Attfield, Cliff & Temple, Jonathan R.W., 2010.
"Balanced growth and the great ratios: New evidence for the US and UK,"
Journal of Macroeconomics,
Elsevier, vol. 32(4), pages 937-956, December.
- Cliff L. F. Attfield & Jonathan R. W. Temple, 2006. "Balanced growth and the great ratios: new evidence for the US and UK," Centre for Growth and Business Cycle Research Discussion Paper Series 75, Economics, The Univeristy of Manchester.
- Philippe Moës, 2012. "Multivariate models with dual cycles: implications for output gap and potential growth measurement," Empirical Economics, Springer, vol. 42(3), pages 791-818, June.
- Mardi Dungey & Jan P. A. M. Jacobs & Jing Jian & Simon van Norden, 2013.
"Trend-Cycle Decomposition: Implications from an Exact Structural Identification,"
CIRANO Working Papers
- Mardi Dungey & Jan P.A.M. Jacobs & Jing Tian & Simon van Norden, 2013. "Trend-cycle decomposition: implications from an exact structural identification," Working Papers 13-22, Federal Reserve Bank of Philadelphia.
- Irma Hindrayanto & Jan Jacobs & Denise Osborn, 2014. "On trend-cycle-seasonal interactions," DNB Working Papers 417, Netherlands Central Bank, Research Department.
- Andrle, Michal, 2008. "The Role of Trends and Detrending in DSGE Models," MPRA Paper 13289, University Library of Munich, Germany.
- Mardi Dungey & Jan PAM Jacobs & Jing Tian & Simon van Norden, 2012.
"On the correspondence between data revision and trend-cycle decomposition,"
CAMA Working Papers
2012-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- M. Dungey & J. P. A. M. Jacobs & J. Tian & S. van Norden, 2013. "On the correspondence between data revision and trend-cycle decomposition," Applied Economics Letters, Taylor & Francis Journals, vol. 20(4), pages 316-319, March.
- Dungey, Mardi & Jacobs, Jan & Tian, Jing & van Norden, Simon, 2012. "On the correspondence between data revision and trend-cycle decomposition," Working Papers 12975, University of Tasmania, School of Economics and Finance, revised 01 Mar 2012.
- Norden, Simon van & Tian, Jing & Jacobs, Jan & Dungey, Mardi, 2012. "On trend-cycle decomposition and data revision," Research Report 12009-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Oh, Kum Hwa & Zivot, Eric & Creal, Drew, 2008. "The relationship between the Beveridge-Nelson decomposition and other permanent-transitory decompositions that are popular in economics," Journal of Econometrics, Elsevier, vol. 146(2), pages 207-219, October.
- Kum Hwa Oh & Eric Zivot & Drew Creal, 2006. "The Relationship between the Beveridge-Nelson Decomposition andUnobserved Component Models with Correlated Shocks," Working Papers UWEC-2006-16-FC, University of Washington, Department of Economics.
- Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "On the Stratonovich – Kalman - Bucy filtering algorithm application for accurate characterization of financial time series with use of state-space model by central banks," MPRA Paper 50235, University Library of Munich, Germany.
- Congregado, Emilio & Golpe, Antonio A. & Parker, Simon C., 2009.
"The Dynamics of Entrepreneurship: Hysteresis, Business Cycles and Government Policy,"
IZA Discussion Papers
4093, Institute for the Study of Labor (IZA).
- Emilio Congregado & Antonio Golpe & Simon Parker, 2012. "The dynamics of entrepreneurship: hysteresis, business cycles and government policy," Empirical Economics, Springer, vol. 43(3), pages 1239-1261, December.
- Tommaso Proietti & Alessandra Luati, 2013. "Generalised Linear Spectral Models," CEIS Research Paper 290, Tor Vergata University, CEIS, revised 03 Oct 2013.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.