Trend-Cycle Correlation, Drift Break and the Estimation of Trend and Cycle in Canadian GDP
This paper argues, using Monte Carlo experiments, that bivariate correlated unobserved components (UC) framework delivers more accurate estimation results for trend and cycle parameters than the univariate framework. The paper estimates stochastic trend and cyclical fluctuations in Canada from a bivariate, correlated UC model with drift breaks. In contrast to the univariate results, bivariate estimation shows a fairly volatile stochastic trend after accounting for the drift break along with a negative trend-cycle shock correlation. The estimated cyclical component is moderately large, persistent and consistent with ECRI denoted Canadian recessions.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (304) 293-7859
Fax: (304) 293-2233
Web page: http://be.wvu.edu/phd_economics/
More information through EDIRC
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.:
- Andrew Levin & Jeremy Piger, 2003.
"Is Inflation Persistence Intrinsic in Industrial Economies?,"
Computing in Economics and Finance 2003
298, Society for Computational Economics.
- Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
- Levin, Andrew T. & Piger, Jeremy M., 2004. "Is inflation persistence intrinsic in industrial economies?," Working Paper Series 0334, European Central Bank.
- Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
- St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
- Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
- 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.
- Tatsuma Wada & Pierre Perron, 2005. "Trend and Cycles: A New Approach and Explanations of Some Old Puzzles," Computing in Economics and Finance 2005 252, Society for Computational Economics.
- Donald W.K. Andrews & Werner Ploberger, 1992.
"Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative,"
Cowles Foundation Discussion Papers
1015, Cowles Foundation for Research in Economics, Yale University.
- Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
- Frédérick Demers, 2003. "The Canadian Phillips Curve and Regime Shifting," Working Papers 03-32, Bank of Canada.
- Perron, P. & Bai, J., 1995.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Cahiers de recherche
9552, Universite de Montreal, Departement de sciences economiques.
- Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- BAI, Jushan & PERRON, Pierre, 1998.
"Computation and Analysis of Multiple Structural-Change Models,"
Cahiers de recherche
9807, Universite de Montreal, Departement de sciences economiques.
- Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
- 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.
- Apel, Mikael & Jansson, Per, 1999.
"A theory-consistent system approach for estimating potential output and the NAIRU,"
Elsevier, vol. 64(3), pages 271-275, September.
- Apel, Mikael & Jansson, Per, 1998. "A Theory-Consistent System Approach for Estimating Potential Output and the NAIRU," Working Paper Series 74, Sveriges Riksbank (Central Bank of Sweden).
- Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
- Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 498-511, March.
When requesting a correction, please mention this item's handle: RePEc:wvu:wpaper:05-07. 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: (Josh Hall)
If references are entirely missing, you can add them using this form.