Testing the Validity of Assumptions of UC-ARIMA Models for Trend-Cycle Decompositions

Marian Vavra ()
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Marian Vavra: National Bank of Slovakia, Research Department

No WP 4/2016, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: This article tests the validity of underlying assumptions (i.e. linearity and normality) of UC-ARIMA models for trend-cycle decompositions using macroeconomic variables from 16 OECD countries. Clear and overwhelming evidence of non-normality and non-linearity is found. Our results thus cast doubts on the adequacy of the filtered cyclical component from this type of model.

Keywords: Normality; Lobato-Velasco test; Linearity; Portmanteau Q test; Trend-cycle decomposition; UC-ARIMA models (search for similar items in EconPapers)
JEL-codes: C12 C22 E32 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2016-09
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1040

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