End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey

Mehmet Ekinci, Gazi Kabaş and Enes Sunel

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: Estimating a robust and stable trend is an important challenge for economic analysis. We compare alternative approaches by estimating the cyclical component for the real exchange rate series of Turkey. Comparison criteria is the sensitivity of the estimated cycle to additional data points. A formal test reveals that cycle values obtained with all methods change substantially upon new data arrivals. To rank the performance of the methods, additional measures underlining the comovement of real-time cycles and the cyclical values with additional data, and the magnitude of end-point bias are developed. These criteria show that an unobserved components approach, which assumes trend and cycle innovations are orthogonal, and fixes the share of trend shocks on the real depreciation rate fluctuations at 10 percent, dominates alternative filtering methods.

Keywords: Trend-cycle decompositions; real exchange rates; stochastic trend (search for similar items in EconPapers)
JEL-codes: C22 E37 F31 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ara and nep-ecm
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Citations: View citations in EconPapers (5)

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Journal Article: End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1316

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