How Are Shocks to Trend and Cycle Correlated? A Simple Methodology for Unidentified Unobserved Components Models
AbstractIn this paper, we propose a simple methodology for investigating how shocks to trend and cycle are correlated in unidentified unobserved components models, in which the correlation is not identified. The proposed methodology is applied to U.S. and U.K. real GDP data. We find that the correlation parameters are negative for both countries. We also investigate how changing the identification restriction results in different trend and cycle estimates.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-172.
Date of creation: Mar 2011
Date of revision:
Unobserved components model; Trend; Cycle; Business Cycle Analysis;
Other versions of this item:
- Daisuke Nagakura, 2008. "How Are Shocks to Trend and Cycle Correlated? A Simple Methodology for Unidentified Unobserved Components Models," IMES Discussion Paper Series 08-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-24 (All new papers)
- NEP-CBA-2011-05-24 (Central Banking)
- NEP-ETS-2011-05-24 (Econometric Time Series)
- NEP-MAC-2011-05-24 (Macroeconomics)
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