Bayesian estimation of the long-run trend of the US economy

Jaeho Kim () and Sora Chon ()
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Jaeho Kim: University of Oklahoma

Empirical Economics, 2022, vol. 62, issue 2, No 6, 485 pages

Abstract: Abstract The main purpose of this paper is to scrutinize the long-run trend of the US real GDP during the post-war period. In the empirical analysis, we introduce multivariate unobserved components models that accommodate time-varying volatility bounded by an economically reasonable range. After accounting for the cointegration relationship among the real GDP, consumption, and investment, we find the following. (i) There was an abrupt and significant downturn in the long-run growth rate in 2007. (ii) The annualized long-run growth rate of the real GDP declined to approximately 1.69%, decreasing from a peak of nearly 3.21% during the 2000s. (iii) The bounded volatility assumption enables a trend-cycle decomposition of the US real GDP that matches the NBER’s recession dates.

Keywords: Structural break; Long-run trend; Unobserved components model; Bounded stochastic volatility (search for similar items in EconPapers)
JEL-codes: C11 C52 E32 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00181-021-02024-4

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