On the correlations of trend–cycle errors
Tatsuma Wada ()
Economics Letters, 2012, vol. 116, issue 3, 396-400
This note provides explanations for an unexpected result, namely, the estimated parameter of the correlation coefficient of the trend shock and cycle shock in the state–space model is almost always (positive or negative) unity, even when the true variance of the trend shock is zero. It is shown that the set of the true parameter values lies on the restriction that requires the variance–covariance matrix of the errors to be nonsingular, therefore, almost always the likelihood function has its (constrained) global maximum on the boundary where the correlation coefficient implies perfect correlation.
Keywords: Trend–cycle decomposition; Unit-root; Maximum likelihood (search for similar items in EconPapers)
JEL-codes: C13 C22 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: On the Correlations of Trend-Cycle Errors (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:116:y:2012:i:3:p:396-400
Access Statistics for this article
Economics Letters is currently edited by Economics Letters Editorial Office
More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Haili He ().