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Multivariate detrending under common trend restrictions: Implications for business cycle research

  • Kozicki, Sharon

This paper outlines a methodology to detrend multiple time series under common trend restrictions. The same filters used to construct the estimated trend in univariate exercises are shown to be appropriate in multivariate studies with a single common trend. However, to estimate the common trend in the multivariate case, the filter is applied to a linear combination of series rather than to each series individually. An empirical example and simulation exercises illustrate the implications of common trend detrending for measurement of business cycle properties.

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File URL: http://www.sciencedirect.com/science/article/B6V85-3WRBPDW-4/2/b5d116c5bcd099a254dd59f64d7cbf29
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 23 (1999)
Issue (Month): 7 (June)
Pages: 997-1028

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Handle: RePEc:eee:dyncon:v:23:y:1999:i:7:p:997-1028
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  2. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1987. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  3. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 241-65, February.
  4. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
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  6. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
  7. Simon, Julian L, 1990. "Great and Almost-Great Magnitudes in Economics," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 149-56, Winter.
  8. Gonzalo, J. & Granger, C., 1992. "Estimation of Common Long-Memory Components in Cointegrated Systems," Papers 4, Boston University - Department of Economics.
  9. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
  10. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
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  13. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
  14. Nelson, Charles R & Kang, Heejoon, 1981. "Spurious Periodicity in Inappropriately Detrended Time Series," Econometrica, Econometric Society, vol. 49(3), pages 741-51, May.
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  16. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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