Modeling Smooth Structural Changes in the Trend of US Real GDP

Ting Qin and Walter Enders ()
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Walter Enders: Department of Economics, St. Cloud State University

No 2008-09 Classification-E32 E37 C32, Working Papers from Saint Cloud State University, Department of Economics

Abstract: A key feature of Gallant’s Flexible Fourier Form is that the essential characteristics of one or more structural breaks can be captured using a small number of low frequency components from a Fourier approximation. We introduce a variant of the Flexible Fourier Form into the trend function of U.S. real GDP in order to allow for gradual effects of unknown numbers of structural breaks occurring at unknown dates. We find that the Fourier components are significant and that there are multiple breaks in the trend. In addition to the productivity slowdown in the 1970s, our trend also captures a productivity resumption in the late 1990s and a slowdown in the late 1950s. Our cycle corresponds very closely to the NBER chronology. We compare the decomposition from our model with those from a standard unobserved components model, the HP filter, and the Perron and Wada (2005) model. We find that our decomposition has several favorable characteristics over the other models and has very different implications about the recovery from the recent recession.

Keywords: Flexible Fourier Form; Smooth Trend Breaks; Fourier Approximation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-mac
Date: 2007-01, Revised 2008-02
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Persistent link: http://EconPapers.repec.org/RePEc:scs:wpaper:0809

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