Aggregate Output Measurements: A Common Trend Approach

Enrique Sentana, Martin Almuzara and Gabriele Fiorentini

No 15758, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our framework to US quarterly data on GDP and GDI, obtaining an improved aggregate output measure.

Keywords: Cointegration; Gdp; Gdi; Overdifferencing; Signal extraction (search for similar items in EconPapers)
JEL-codes: C32 E01 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Chapter: Aggregate Output Measurements: A Common Trend Approach (2023)
Working Paper: Aggregate Output Measurements: A Common Trend Approach (2021)
Working Paper: Aggregate Output Measurements: A Common Trend Approach (2021)
Working Paper: Aggregate Output Measurements: a Common Trend Approach (2021)
Working Paper: Aggregate output measurements: a common trend approach (2021)
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