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Common Trends and Common Cycles in Canadian Sectoral Output

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  • Christoph Schleicher
  • Francisco Barillas

Abstract

This paper examines evidence of long- and short-run co-movement in Canadian sectoral output data. Our framework builds on a vector-error-correction representation that allows to test for and compute full-information maximum-likelihood estimates of models with codependent cycle restrictions. We 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. We 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 Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 214.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:214

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Keywords: common features; business cycles; vector autoregressions;

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Cited by:
  1. de Silva, Ashton, 2007. "A multivariate innovations state space Beveridge Nelson decomposition," MPRA Paper 5431, University Library of Munich, Germany.
  2. Christoph Schleicher, 2004. "Codependence in Cointegrated Autoregressive Models," Computing in Economics and Finance 2004 286, Society for Computational Economics.
  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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