On the Correlations of Trend-Cycle Errors

Tatsuma Wada

MPRA Paper from University Library of Munich, Germany

Abstract: This note provides explanations for an unexpected result, namely, the estimated parameter of the correlation coefficient of the trend shock and cycle shock in the state–space model is almost always (positive or negative) unity, even when the true variance of the trend shock is zero. It is shown that the set of the true parameter values lies on the restriction that requires the variance–covariance matrix of the errors to be nonsingular, therefore, almost always the likelihood function has its (constrained) global maximum on the boundary where the correlation coefficient implies perfect correlation.

Keywords: Trend–cycle decomposition; Unit-root; Maximum likelihood (search for similar items in EconPapers)
JEL-codes: C13 C22 (search for similar items in EconPapers)
Date: 2011-12-19
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Economics Letters 3.116(2012): pp. 396-400

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/41754/1/MPRA_paper_41754.pdf original version (application/pdf)

Related works:
Journal Article: On the correlations of trend–cycle errors (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:41754

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().