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Let's take a break: Trends and cycles in US real GDP

Pierre Perron () and Tatsuma Wada ()

Journal of Monetary Economics, 2009, vol. 56, issue 6, 749-765

Abstract: Trend-cycle decompositions for US real GDP such as the unobserved components models, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter and others yield very different cycles which bear little resemblance to the NBER chronology, ascribes much movements to the trend leaving little to the cycle, and some imply a negative correlation between the noise to the cycle and the trend. We argue that these features are artifacts created by the neglect of a change in the slope of the trend function. Once this is accounted for, all methods yield the same cycle with a trend that is non-stochastic except for a few periods around 1973. The cycle is more important in magnitude than previously reported and it accords well with the NBER chronology. Our results are corroborated using an alternative trend-cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component.

Keywords: Trend-cycle; decomposition; Structural; change; Non-Gaussian; filtering; Unobserved; components; model; Beveridge-Nelson; decomposition (search for similar items in EconPapers)
Date: 2009
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Related works:
Working Paper: Let’s Take a Break: Trends and Cycles in US Real GDP (2009)
Working Paper: Let’s Take a Break: Trends and Cycles in US Real GDP? (2005)
Software Item: RATS programs to replicate Perron-Wada state space model Downloads
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