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Eigenvalue Decomposition of Time Series with Application to the Czech Business Cycle

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  • Jaromir Benes
  • David Vavra

Abstract

We follow a Beveridge-Nelson like time series decomposition method (into trend, business cycle and irregular components), and examine a stylized model of price inflation determination using the Czech data. We characterize the estimated components of CPI, IPPI and import inflations, together with the real production wage and real output, and survey their basic correlation properties; furthermore we compute structural innovations imposing restrictions on their long-run effects, draw the impulse responses, and test the results by means of bootstrap simulation. We conclude that major room for further refinement of the research is found in two areas, First, from an economist's perspective, in the construction of real marginal cost indicators, and second, from a statistiacian's perspective, in further investigation of the robustness of the method.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2004/08.

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Date of creation: Dec 2004
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Handle: RePEc:cnb:wpaper:2004/08

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Keywords: bootstrap; business cycle; inflation; structural VAR; time series decomposition;

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  3. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  4. repec:wop:humbsf:2000-22 is not listed on IDEAS
  5. Hoffmann, Mathias, 2000. "Long run recursive VAR models and QR decompositions," Discussion Paper Series In Economics And Econometrics 0015, Economics Division, School of Social Sciences, University of Southampton.
  6. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  7. Casals J. & Jerez M. & Sotoca S., 2002. "An Exact Multivariate Model-Based Structural Decomposition," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 553-564, June.
  8. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  9. Jaromir Benes & Papa M'B. P. N'Diaye, 2004. "A Multivariate Filter for Measuring Potential Output and the NAIRU Application to the Czech Republic," IMF Working Papers 04/45, International Monetary Fund.
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