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Output fluctuations persistence: Do cyclical shocks matter?

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  • Silvestro Di Sanzo

    (Departamento de Fundamentos del Analisis Economico, Universidad de Alicante)

Abstract

The aim of this paper is to identify the different sources of persistence of output fluctuations. We propose an unobserved components model that allows us to decompose GDP series into a trend component and a cyclical component. We let the drift of the trend component to switch between different regimes according to a first-order Markov process. To calculate an appropriate p-value for a test of linearity we propose a bootstrap procedure, which allows for general forms of heteroskedasticity. The performance of the bootstrap is checked by means of a Monte Carlo simulation. Our study concerns the U.S. As suggested by the Endogenous Growth theory, cyclical shocks appear to play an important role on the observed persistence of output. We argue that the traditional explanation of persistence, which is related to Real Business Cycle models with exogenous productivity, is not consistent with our data. We also find that the majority of business cycle fluctuations in the U.S. are due to real shocks.

Suggested Citation

  • Silvestro Di Sanzo, 2006. "Output fluctuations persistence: Do cyclical shocks matter?," Working Papers 2006_21, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2006_21
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    References listed on IDEAS

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    More about this item

    Keywords

    Business cycle; Persistence; Unobserved Components model; First-order Markov process; Wild bootstrap; Monte Carlo;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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