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Implicit Estimates of Natural, Trend, and Cyclical Components of Real GNP

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  • Charles R. Nelson

Abstract

Estimates of the natural or full employment level of real GNP have usually been obtained by statistical detrending procedures which assume independence between trend and cycle. This paper presents an alternative approach which says that the natural level should be measured in the context of a macro model. If the quantity equation holds with money exogenous and if the price level is sticky, then observed real GNB will reflect both nominal shocks, which are observed, and real shocks, which are unobserved shifts in the natural level. The path of the natural level is then implicit in the data given the model. Calculated paths of the natural level of U.S. real GNP and the resulting business cycle are presented.

Suggested Citation

  • Charles R. Nelson, 1987. "Implicit Estimates of Natural, Trend, and Cyclical Components of Real GNP," NBER Working Papers 2253, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2253
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    1. Nelson, Charles R., 1988. "Spurious trend and cycle in the state space decomposition of a time series with a unit root," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 475-488.

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