The Role of Trends and Detrending in DSGE Models

Michal Andrle

MPRA Paper from University Library of Munich, Germany

Abstract: The paper discusses the role of stochastic trends in DSGE models and effects of stochastic detrending. We argue that explicit structural assumptions on trend behavior is convenient, namely for emerging countries. In emerging countries permanent shocks are an important part of business cycle dynamics. The reason is that permanent shocks spill over the whole frequency range, potentially, including business cycle frequencies. Applying high- or band-pass filter to obtain business cycle dynamics, however, does not eliminate the influence of permanent shocks on comovements of time series. The contribution of the paper is to provide a way how to calculate the role of permanent shocks on the detrended/ filtered business cycle population dynamics in a DSGE model laboratory using the frequency domain methods.

Keywords: detrending; band-pass filter; spectral density; DSGE (search for similar items in EconPapers)
JEL-codes: C53 D58 E32 (search for similar items in EconPapers)
Date: 2008-08-01
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-ecm, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13289

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