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Trend and Cycle in the Euro-Area: A Permanent-Transitory Decomposition Using a Cointegrated VAR Model

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  • Christian Schumacher

Abstract

This paper investigates the Euro-area business cycle using a multivariate autoregressive time series model with cointegration. The cointegration restrictions help to identify permanent and transitory shocks which form the stochastic part of trend and cyclical GDP, respectively. The identification allows for a historical decomposition of Euro-area GDP into trend and cycle. Further, the relative importance of both structural shocks is examined with forecast error variance decompositions. The results show that permanent shocks account for a significant fraction of output fluctuations so that the stochastic trend of Euro-area GDP has considerable variability. Der Beitrag untersucht den Konjunkturzyklus im Euroraum unter Verwendung eines multivariaten Zeitreihenmodells mit Kointegration. Die Kointegrationsrestriktionen helfen, permanente und transitorische Schocks zu identifizieren. Die permanenten Schocks bilden den stochastischen Trend, während die transitorischen Schocks den zyklischen Teil der Produktion bestimmen. Die Identifikation erlaubt eine historische Zerlegung der Produktion im Euroraum in Trend und Zyklus. Zudem wird mit Hilfe von Prognosefehler-Varianzzerlegungen die Bedeutung der strukturellen Schocks untersucht. Die Ergebnisse zeigen, dass die permanenten Schocks einen signifikanten Anteil an den Schwankungen in der Produktion haben, so dass der Trend der Produktion im Euroraum eine deutliche Variabilität aufweist.

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  • Christian Schumacher, 2001. "Trend and Cycle in the Euro-Area: A Permanent-Transitory Decomposition Using a Cointegrated VAR Model," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(3), pages 352-363.
    • Handle: RePEc:diw:diwvjh:70-30-5
    DOI: 10.3790/vjh.70.3.352
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