Trend-Cycle Correlation, Drift Break and the Estimation of Trend and Cycle in Canadian GDP
AbstractThis paper argues, using Monte Carlo experiments, that bivariate correlated unobserved components (UC) framework delivers more accurate estimation results for trend and cycle parameters than the univariate framework. The paper estimates stochastic trend and cyclical fluctuations in Canada from a bivariate, correlated UC model with drift breaks. In contrast to the univariate results, bivariate estimation shows a fairly volatile stochastic trend after accounting for the drift break along with a negative trend-cycle shock correlation. The estimated cyclical component is moderately large, persistent and consistent with ECRI denoted Canadian recessions.
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Bibliographic InfoPaper provided by Department of Economics, West Virginia University in its series Working Papers with number 05-07 Classification- JEL: E31, E32, E50.
Length: 25 pages
Date of creation: 2005
Date of revision:
Stochastic trend; Inflation; GDP; Unobserved components model.;
Other versions of this item:
- Arabinda Basistha, 2007. "Trend-cycle correlation, drift break and the estimation of trend and cycle in Canadian GDP," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 584-606, May.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- 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-2006-09-16 (All new papers)
- NEP-BEC-2006-09-16 (Business Economics)
- NEP-ETS-2006-09-16 (Econometric Time Series)
- NEP-MAC-2006-09-16 (Macroeconomics)
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- Soloschenko, Max & Weber, Enzo, 2012. "Trend-Cycle Interactions and the Subprime Crisis: Analysis of US and Canadian Output," University of Regensburg Working Papers in Business, Economics and Management Information Systems 470, University of Regensburg, Department of Economics.
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