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Trend in cycle or cycle in trend? New structural identifications for unobserved-components models of U.S. real GDP

journal contribution
posted on 2023-05-18, 01:46 authored by Dungey, MH, Jacobs, J, Jing TianJing Tian, Norden Van, S
A well-documented property of the Beveridge–Nelson trend–cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where permanent innovations enter the cycle or transitory innovations enter the trend, and that identification restrictions are necessary to make this structural distinction. A reduced-form unrestricted version is compatible with either option, but cannot distinguish which is relevant. We discuss economic interpretations and implications using U.S. real GDP data.

History

Publication title

Macroeconomic Dynamics

Volume

19

Issue

4

Pagination

776-790

ISSN

1365-1005

Department/School

TSBE

Publisher

Cambridge Univ Press

Place of publication

40 West 20Th St, New York, USA, Ny, 10011-4211

Rights statement

Copyright 2014 Cambridge University Press

Repository Status

  • Restricted

Socio-economic Objectives

Economic growth

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