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Common Trends and Common Cycles in Canadian Sectoral Output

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  • Francisco Barillas
  • Christoph Schleicher

Abstract

The authors examine evidence of long- and short-run co-movement in Canadian sectoral output data. Their framework builds on a vector-error-correction representation that allows them to test for and compute full-information maximum-likelihood estimates of models with codependent cycle restrictions. They find that the seven sectors under consideration contain five common trends and five codependent cycles and use their estimates to obtain a multivariate Beveridge- Nelson decomposition to isolate and compare the common components. A forecast error variance decomposition indicates that some sectors, such as manufacturing and construction, are subject to persistent transitory shocks, whereas other sectors, such as financial services, are not. The authors also find that imposing common feature restrictions leads to a non-trivial gain in the ability to forecast both aggregate and sectoral output. Among the main conclusions is that manufacturing, construction, and the primary sector are the most important sources of business cycle fluctuations for the Canadian economy.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 03-44.

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Length: 47 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocawp:03-44

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Cited by:
  1. Christoph Schleicher, 2004. "Codependence in Cointegrated Autoregressive Models," Computing in Economics and Finance 2004 286, Society for Computational Economics.
  2. de Silva, Ashton & Hyndman, Rob J. & Snyder, Ralph, 2009. "A multivariate innovations state space Beveridge-Nelson decomposition," Economic Modelling, Elsevier, vol. 26(5), pages 1067-1074, September.
  3. Elizabeth C. Wakerly & Byron G. Scott & James M. Nason, 2004. "Common trends and common cycles in Canada: who knew so much has been going on?," Working Paper 2004-5, Federal Reserve Bank of Atlanta.

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