Common Trends and Common Cycles in Canadian Sectoral Output
AbstractThis 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 InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 214.
Date of creation: 11 Nov 2005
Date of revision:
common features; business cycles; vector autoregressions;
Other versions of this item:
- Francisco Barillas & Christoph Schleicher, 2003. "Common Trends and Common Cycles in Canadian Sectoral Output," Working Papers 03-44, Bank of Canada.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-19 (All new papers)
- NEP-BEC-2005-11-19 (Business Economics)
- NEP-ETS-2005-11-19 (Econometric Time Series)
- NEP-FOR-2005-11-19 (Forecasting)
- NEP-MAC-2005-11-19 (Macroeconomics)
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- Elizabeth Wakerly & Byron Scott & James Nason, 2006.
"Common trends and common cycles in Canada: who knew so much has been going on?,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 39(1), pages 320-347, February.
- 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.
- Christoph Schleicher, 2007.
"Codependence in cointegrated autoregressive models,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 22(1), pages 137-159.
- Christoph Schleicher, 2004. "Codependence in Cointegrated Autoregressive Models," Computing in Economics and Finance 2004 286, Society for Computational Economics.
- de Silva, Ashton & Hyndman, Rob J. & Snyder, Ralph, 2009.
"A multivariate innovations state space Beveridge-Nelson decomposition,"
Elsevier, vol. 26(5), pages 1067-1074, September.
- de Silva, Ashton, 2007. "A multivariate innovations state space Beveridge Nelson decomposition," MPRA Paper 5431, University Library of Munich, Germany.
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