TREND IN CYCLE OR CYCLE IN TREND? NEW STRUCTURAL IDENTIFICATIONS FOR UNOBSERVED-COMPONENTS MODELS OF U.S. REAL GDP

Mardi Dungey, Jan Jacobs, Jing Tian and Simon van Norden ()

Macroeconomic Dynamics, 2015, vol. 19, issue 4, 776-790

Abstract: A well-documented property of the Beveridge–Nelson trend–cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where permanent innovations enter the cycle or transitory innovations enter the trend, and that identification restrictions are necessary to make this structural distinction. A reduced-form unrestricted version is compatible with either option, but cannot distinguish which is relevant. We discuss economic interpretations and implications using U.S. real GDP data.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:19:y:2015:i:04:p:776-790_00

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