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On trend-cycle decomposition and data revision

  • Norden, Simon van
  • Tian, Jing
  • Jacobs, Jan
  • Dungey, Mardi

    (Groningen University)

A well-documented property of the Beveridge-Nelson trend-cycle decomposition is the perfect negative correlation between trend and cycle innovations. This paper gives a novel explanation for this negative correlation originating from the Jacobs-van Norden (2011) data revision model. Trend shocks may enter the equation for the cycle or cyclical shocks may enter the trend equation. We discuss economic interpretations and implications, including ltering and smoothing properties.We illustrate the idea with simulations based on the Morley, Nelson and Zivot (2003) outcomes

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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 12009-EEF.

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Date of creation: 2012
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Handle: RePEc:dgr:rugsom:12009-eef
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  1. Nelson, Charles R., 2008. "The Beveridge-Nelson decomposition in retrospect and prospect," Journal of Econometrics, Elsevier, vol. 146(2), pages 202-206, October.
  2. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  3. Oh, Kum Hwa & Zivot, Eric & Creal, Drew, 2008. "The relationship between the Beveridge-Nelson decomposition and other permanent-transitory decompositions that are popular in economics," Journal of Econometrics, Elsevier, vol. 146(2), pages 207-219, October.
  4. Morley, James C., 2002. "A state-space approach to calculating the Beveridge-Nelson decomposition," Economics Letters, Elsevier, vol. 75(1), pages 123-127, March.
  5. Evans, George & Reichlin, Lucrezia, 1994. "Information, forecasts, and measurement of the business cycle," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 233-254, April.
  6. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  7. N. Kundan Kishor & Evan F. Koenig, 2009. "VAR Estimation and Forecasting When Data Are Subject to Revision," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(2), pages 181-190, July.
  8. Dean Croushore & Tom Stark, 1999. "A real-time data set for marcoeconomists: does the data vintage matter?," Working Papers 99-21, Federal Reserve Bank of Philadelphia.
  9. Mardi Dungey & Jan PAM Jacobs & Jing Tian & Simon van Norden, 2012. "On the correspondence between data revision and trend-cycle decomposition," CAMA Working Papers 2012-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  10. Perron, Pierre & Wada, Tatsuma, 2009. "Let's take a break: Trends and cycles in US real GDP," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 749-765, September.
  11. Alastair Cunningham & Jana Eklund & Christopher Jeffery & George Kapetanios & Vincent Labhard, 2007. "A state space approach to extracting the signal from uncertain data," Bank of England working papers 336, Bank of England.
  12. Pagan, Adrian, 1997. "Policy, Theory, and the Cycle," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 19-33, Autumn.
  13. Harvey, A.C. & Koopman, S.J.M., 1999. "Signal Extraction and the Formulation of Unobserved Components Models," Discussion Paper 1999-44, Tilburg University, Center for Economic Research.
  14. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-80, October.
  15. Tommaso Proietti, 2006. "Trend-Cycle Decompositions with Correlated Components," Econometric Reviews, Taylor & Francis Journals, vol. 25(1), pages 61-84.
  16. Arnold, Lutz G., 2002. "Business Cycle Theory," OUP Catalogue, Oxford University Press, number 9780199256822, March.
  17. Charles R. Nelson & Jaejoon Lee, 2007. "Expectation horizon and the Phillips Curve: the solution to an empirical puzzle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 161-178.
  18. Neil Shephard & Jurgen Doornik & Siem Jan Koopman, 1998. "Statistical algorithms for models in state space using SsfPack 2.2," Economics Series Working Papers 1998-W06, University of Oxford, Department of Economics.
  19. Aruoba, Boragan, 2005. "Data Revisions Are Not Well-Behaved," CEPR Discussion Papers 5271, C.E.P.R. Discussion Papers.
  20. Morley, James C., 2011. "The Two Interpretations Of The Beveridge–Nelson Decomposition," Macroeconomic Dynamics, Cambridge University Press, vol. 15(03), pages 419-439, June.
  21. Tara M. Sinclair & Dennis W. Jensen & Michael D. Bradley, 2009. "How Well Does "Core" CPI Capture Permanent Price Changes?," Working Papers 2009-13, The George Washington University, Institute for International Economic Policy.
  22. repec:fgv:epgrbe:v:47:n:2:a:1 is not listed on IDEAS
  23. Jacobs, Jan P.A.M. & van Norden, Simon, 2011. "Modeling data revisions: Measurement error and dynamics of "true" values," Journal of Econometrics, Elsevier, vol. 161(2), pages 101-109, April.
  24. Tara M. Sinclair, 2009. "The Relationships between Permanent and Transitory Movements in U.S. Output and the Unemployment Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 529-542, 03.
  25. repec:taf:jnlbes:v:30:y:2012:i:2:p:181-190 is not listed on IDEAS
  26. repec:taf:jnlbes:v:30:y:2012:i:2:p:173-180 is not listed on IDEAS
  27. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-95, October.
  28. Knetsch, Thomas A., 2005. "Short-run and long-run comovement of GDP and some expenditure aggregates in Germany, France and Italy," Discussion Paper Series 1: Economic Studies 2005,39, Deutsche Bundesbank, Research Centre.
  29. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
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