Economic Growth and Business Cycles: A Critical Comment on Detrending Time Series (Revised Version)
AbstractIn this paper we pursue an approach based on economic theory to illustrate possible shortcomings of widely-used detrending methods.We analyze a simple model of economic growth and business cycles in which investment and technical progress are stochastic.The Hodrick-Prescott and the Baxter-King filter are shown to detect spurious business cycles which are not related to actual cycles in the model.Our results cast doubts on the validity of commonly-accepted stylized business cycle facts. We also discuss the relation of business-cycle dating based on indicators of economic activity,as e.g.applied by the NBER,and the detrending results.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 054.
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detrending; business cycles; growth;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-10-05 (All new papers)
- NEP-DEV-2000-10-05 (Development)
- NEP-DGE-2000-10-05 (Dynamic General Equilibrium)
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