Common Trends and Common Cycles in Canadian Sectoral Output

Christoph Schleicher and Francisco Barillas

No 214, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper examines evidence of long- and short-run co-movement in Canadian sectoral output data. Our framework builds on a vector-error-correction representation that allows to test for and compute full-information maximum-likelihood estimates of models with codependent cycle restrictions. We find that the seven sectors under consideration contain five common trends and five codependent cycles and use their estimates to obtain a multivariate Beveridge-Nelson decomposition to isolate and compare the common components. A forecast error variance decomposition indicates that some sectors, such as manufacturing and construction, are subject to persistent transitory shocks, whereas other sectors, such as financial services, are not. We also find that imposing common feature restrictions leads to a non-trivial gain in the ability to forecast both aggregate and sectoral output. Among the main conclusions is that manufacturing, construction, and the primary sector are the most important sources of business cycle fluctuations for the Canadian economy.

Keywords: common features; business cycles; vector autoregressions (search for similar items in EconPapers)
JEL-codes: C15 C22 C32 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-bec, nep-ets, nep-for and nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: Common Trends and Common Cycles in Canadian Sectoral Output (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:214

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