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Are trend and cycle innovations uncorrelated? International evidence

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  • Kosei Fukuda

Abstract

The zero-correlation restriction for trend and cycle innovations is empirically examined using an international data set. Unlike the result obtained by Morley et al. (2003), a model with zero-correlation restriction is selected for all nine countries. Since the adequacy of zero-correlation restriction depends on the autoregressive (AR) order assumed, an information-criterion-based model-selection method is applied. In this method, first, possible alternative models are considered by changing the AR order and by including or excluding the zero-correlation restriction, and then the best model is selected from among them. Consequently, it is determined on the basis of the selected model whether the zero-correlation restriction should be imposed.

Suggested Citation

  • Kosei Fukuda, 2007. "Are trend and cycle innovations uncorrelated? International evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 14(12), pages 923-926.
  • Handle: RePEc:taf:apeclt:v:14:y:2007:i:12:p:923-926
    DOI: 10.1080/13504850600705893
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    Cited by:

    1. Daisuke Nagakura, 2008. "How Are Shocks to Trend and Cycle Correlated? A Simple Methodology for Unidentified Unobserved Components Models," IMES Discussion Paper Series 08-E-24, Institute for Monetary and Economic Studies, Bank of Japan.

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