Shocking Stories

S. Levtchenkova, Adrian Pagan and John Robertson

Journal of Economic Surveys, 1998, vol. 12, issue 5, 507-532

Abstract: The paper provides a survey of methods that decompose multivariate series into permanent and transitory components by using ideas drawn from the co‐integration literature. We adopt a two stage procedure to effect the decomposition. In the first stage a basic set of permanent and transitory components is formed by using standard definitions of the shocks which they are constituted from. The resulting measurements are not unique and further information needs to be employed to get uniqueness. Such information can come in many forms but a particularly important one involves the values of the long‐run multipliers for permanent shocks that are available from many calibrated models. A comparison of the methods of effecting the decomposition is performed using a well known data set.

Date: 1998
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