How Are Shocks to Trend and Cycle Correlated? A Simple Methodology for Unidentified Unobserved Components Models

Daisuke Nagakura

No 08-E-24, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: In this paper, we propose a simple methodology for investigating how shocks to trend and cycle are correlated in unidentified unobserved components models, in which the correlation is not identified. The proposed methodology is applied to U.S. and U.K. real GDP data. We find that the correlation parameters are negative for both countries. We also investigate how changing the identification restriction results in different trend and cycle estimates. It is found that estimates of the trend and cycle can vary substantially depending on the identification restrictions imposed.

Keywords: Business Cycle Analysis; Trend; Cycle; Permanent Component; Transitory Component; Unobserved Components Model (search for similar items in EconPapers)
JEL-codes: C01 E32 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-bec, nep-cba, nep-ecm, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: How Are Shocks to Trend and Cycle Correlated? A Simple Methodology for Unidentified Unobserved Components Models (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:08-e-24

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