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. It is found that estimates of the trend and cycle can vary substantially depending on the identification restrictions imposed.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 08-E-24.
Date of creation: Oct 2008
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Business Cycle Analysis; Trend; Cycle; Permanent Component; Transitory Component; Unobserved Components Model;
Other versions of this item:
- Daisuke Nagakura, 2011. "How Are Shocks to Trend and Cycle Correlated? A Simple Methodology for Unidentified Unobserved Components Models," Global COE Hi-Stat Discussion Paper Series gd10-172, Institute of Economic Research, Hitotsubashi University.
- 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-2008-10-28 (All new papers)
- NEP-BEC-2008-10-28 (Business Economics)
- NEP-CBA-2008-10-28 (Central Banking)
- NEP-ECM-2008-10-28 (Econometrics)
- NEP-ETS-2008-10-28 (Econometric Time Series)
- NEP-MAC-2008-10-28 (Macroeconomics)
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