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The trend-cycle decomposition of output and the Phillips curve: Bayesian estimates for Italy

Listed author(s):
  • Fabio Busetti

    ()

    (Bank of Italy)

  • Michele Caivano

    ()

    (Bank of Italy)

A standard model-based trend-cycle decomposition of Italian GDP yields a likelihood function that is relatively flat and has two local maxima. A Bayesian estimation of the model identifies output gap and trend components that match the features of the Italian business cycle well. In a bivariate output and Phillips curve model it is found that: (i) the median value of the semi-elasticity of prices to the output gap is 0.5 after 20 quarters, (ii) the inflation cycle lags GDP on average by about 3 quarters.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 941.

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Date of creation: Nov 2013
Handle: RePEc:bdi:wptemi:td_941_13
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  1. Harvey, Andrew C. & Trimbur, Thomas M. & Van Dijk, Herman K., 2007. "Trends and cycles in economic time series: A Bayesian approach," Journal of Econometrics, Elsevier, vol. 140(2), pages 618-649, October.
  2. Albert Marcet & Morte O. Ravn, "undated". "The HP-Filter in Cross-Country Comparisons," Studies on the Spanish Economy 100, FEDEA.
  3. Tommaso Proietti, 2008. "Structural Time Series Models for Business Cycle Analysis," CEIS Research Paper 109, Tor Vergata University, CEIS, revised 10 Jul 2008.
  4. 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 231-247, July-Sept.
  5. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  6. Antonio Bassanetti & Michele Caivano & Alberto Locarno, 2010. "Modelling Italian potential output and the output gap," Temi di discussione (Economic working papers) 771, Bank of Italy, Economic Research and International Relations Area.
  7. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
  8. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
  9. Andrew C. Harvey & Thomas M. Trimbur, 2003. "General Model-Based Filters for Extracting Cycles and Trends in Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 244-255, May.
  10. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  11. Andrew Harvey, 2011. "Modelling the Phillips curve with unobserved components," Applied Financial Economics, Taylor & Francis Journals, vol. 21(1-2), pages 7-17.
  12. Gerhard Bry & Charlotte Boschan, 1971. "Foreword to "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs"," NBER Chapters,in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages -1 National Bureau of Economic Research, Inc.
  13. Planas, Christophe & Rossi, Alessandro & Fiorentini, Gabriele, 2008. "Bayesian Analysis of the Output Gap," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 18-32, January.
  14. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 797-814.
  15. Gerhard Runstler, 2004. "Modelling phase shifts among stochastic cycles," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 232-248, 06.
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