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On trend-cycle decomposition and data revision

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

No 12009-EEF, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: A well-documented property of the Beveridge-Nelson trend-cycle decomposition is the perfect negative correlation between trend and cycle innovations. This paper gives a novel explanation for this negative correlation originating from the Jacobs-van Norden (2011) data revision model. Trend shocks may enter the equation for the cycle or cyclical shocks may enter the trend equation. We discuss economic interpretations and implications, including ltering and smoothing properties.We illustrate the idea with simulations based on the Morley, Nelson and Zivot (2003) outcomes

Date: 2012
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