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Stochastic Trends, Deterministic Trends and Business Cycle Turning Points

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  • GORDON, Stephen

Abstract

This study examines the relationship between specifications for long-run output patterns and specifications for business cycle dynamics. In an application to US GDP, it is found that inferences about the nature of the trend in output are not robust to changes in the specification for short-run fluctuations. Similarly, the choice of which model best describes the transitory movements in output depends on the way in which the trend is specified. The empirical analysis makes use of Bayesian methods to compare non-nested models for US GDP. Inspection of the predictive likelihoods for the individual data points suggests that the information contained in the data is largely limited to the observations associated with business cycle turning points.

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  • GORDON, Stephen, 1995. "Stochastic Trends, Deterministic Trends and Business Cycle Turning Points," Cahiers de recherche 9503, Université Laval - Département d'économique.
    • Handle: RePEc:lvl:laeccr:9503
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    File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/1995/9503.ps
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    Cited by:

    1. Clements, Michael P & Krolzig, Hans-Martin, 2003. "Business Cycle Asymmetries: Characterization and Testing Based on Markov-Switching Autoregressions," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 196-211, January.
    2. John M Maheu & Thomas H McCurdy, 2007. "Modeling foreign exchange rates with jumps," Working Papers tecipa-279, University of Toronto, Department of Economics.
    3. Lars-Erik Öller & Lasse Koskinen, 2004. "A classifying procedure for signalling turning points," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(3), pages 197-214.
    4. Clements, Michael P & Krolzig, Hans-Martin, 2003. "Business Cycle Asymmetries: Characterization and Testing Based on Markov-Switching Autoregressions," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 196-211, January.

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