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Trends, Cycles and Convergence

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  • Andrew Harvey

Abstract

This article first discusses ways of decomposing a time series into trend and cyclical components, paying particular attention to a new class of model for cycles. It is shown how using an auxiliary series can help to achieve a more satisfactory decomposition. A discussion of balanced growth then leads on to the construction of new models for converging economies. The preferred models combine unobserved components with an error correction mechanism and allow a decomposition into trend, cycle and convergence components. This provides insight into what has happened in the past, enables the current state of an economy to be more accurately assessed and gives a procedure for the prediction of future observations. The methods are applied to data on the US, Japan and Chile.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 155.

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Date of creation: May 2002
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Handle: RePEc:chb:bcchwp:155

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  1. Harvey, A. & Vasco Carvalho, 2002. "Models for Converging Economies," Cambridge Working Papers in Economics 0216, Faculty of Economics, University of Cambridge.
  2. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  3. Andrew B. Bernard & Steven N. Durlauf, 1994. "Interpreting Tests of the Convergence Hypothesis," NBER Technical Working Papers 0159, National Bureau of Economic Research, Inc.
  4. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  5. Andrew Harvey & Chia-Hui Chung, 2000. "Estimating the underlying change in unemployment in the UK," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 163(3), pages 303-309.
  6. Gomez, Victor, 2001. "The Use of Butterworth Filters for Trend and Cycle Estimation in Economic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 365-73, July.
  7. Koopman, S.J.M. & Shephard, N. & Doornik, J.A., 1998. "Statistical Algorithms for Models in State Space Using SsfPack 2.2," Discussion Paper 1998-141, Tilburg University, Center for Economic Research.
  8. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
  9. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
  10. Evans, Paul & Karras, Georgios, 1996. "Convergence revisited," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 249-265, April.
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