The effect of seasonal adjustment on the properties of business cycle regimes

Antonio Matas-Mir, Denise Osborn () and Marco J. Lombardi
Additional contact information
Antonio Matas-Mir: Directorate General Statistics, European Central Bank, Frankfurt, Germany, Postal: Directorate General Statistics, European Central Bank, Frankfurt, Germany
Marco J. Lombardi: Department of Economics, European University Institute, Fiesole, Italy, Postal: Department of Economics, European University Institute, Fiesole, Italy

Journal of Applied Econometrics, 2008, vol. 23, issue 2, pages 257-278

Abstract: We study the impact of seasonal adjustment on the properties of business cycle expansion and recession regimes using analytical, simulation and empirical methods. Analytically, we show that the X-11 adjustment filter both reduces the magnitude of change at turning points and reduces the depth of recessions, with specific effects depending on the length of the recession. A Monte Carlo analysis using Markov-switching models confirms these properties, with particularly undesirable effects in delaying the recognition of the end of a recession. However, seasonal adjustment can help to clarify the true regime when this is well underway. These results continue to hold when a seasonally non-stationary process with regime-dependent mean is misspecified as one with deterministic seasonal effects. The empirical findings, based on four coincident US business cycle indicators, reinforce the analytical and simulation results by showing that seasonal adjustment leads to the identification of longer and shallower recessions than obtained using unadjusted data. Copyright © 2008 John Wiley & Sons, Ltd.

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Related works:
Working Paper: The Effect of Seasonal Adjustment on the Properties of Business Cycle Regimes (2005)
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