Business cycle detrending of macroeconomic data via a latent business cycle index
We use Markov Chain Monte Carlo methods to augment a vector autoregressive system with a latent business cycle index that is negative during recessions and positive during expansions. We then sample counterfactual values of the macroeconomic variables in the case where the latent business cycle index is held constant at its median value. These counterfactual values represent posterior beliefs about how the economy would have evolved absent business cycle fluctuations. One advantage is that a VAR framework provides model-consistent counterfactual values in the same way that VARs provide model-consistent forecasts, so data series are not detrended in isolation from each other. We apply these methods to estimate the business cycle components of industrial production growth, consumer price inflation, the federal funds rate and the spread between long-term and short-term interest rates. These decompositions provide an explicitly counterfactual approach to deriving empirical business cycle facts that complements other approaches.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kozicki, Sharon, 1999.
"Multivariate detrending under common trend restrictions: Implications for business cycle research,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 23(7), pages 997-1028, June.
- Sharon Kozicki, 1996. "Multivariate detrending under common trend restrictions: implications for business cycle research," Research Working Paper 96-01, Federal Reserve Bank of Kansas City.
- Michael J. Dueker, 1998.
"Conditional heteroskedasticity in qualitative response models of time series: a Gibbs sampling approach to the bank prime rate,"
1998-011, Federal Reserve Bank of St. Louis.
- Dueker, Michael, 1999. "Conditional Heteroscedasticity in Qualitative Response Models of Time Series: A Gibbs-Sampling Approach to the Bank Prime Rate," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 466-72, October.
- Michael Dueker, 2005.
"Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of U.S. Recessions,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 23, pages 96-104, January.
- Tom Doan, . "RATS programs to replicate Dueker(2005) JBES dynamic probit model," Statistical Software Components RTZ00049, Boston College Department of Economics.
- Michael J. Dueker, 2003. "Dynamic forecasts of qualitative variables: a Qual VAR model of U.S. recessions," Working Papers 2001-012, Federal Reserve Bank of St. Louis.
- King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991.
"Stochastic Trends and Economic Fluctuations,"
American Economic Review,
American Economic Association, vol. 81(4), pages 819-40, September.
- 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.
- Tom Doan, . "RATS programs to replicate King, Plosser, Stock, Watson AER 1991 results," Statistical Software Components RTZ00107, Boston College Department of Economics.
- Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
- Marianne Baxter & Robert G. King, 1995.
"Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series,"
NBER Working Papers
5022, National Bureau of Economic Research, Inc.
- 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.
- Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, vol. 27(2), pages 163-183.
- 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.
- John H. Cochrane, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 241-265.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2002-025. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If references are entirely missing, you can add them using this form.