 Why are Beveridge-Nelson and Unobserved-component decompositions of GDP so Different?James Morley, Charles Nelson and Eric Zivot Working Papers from University of Washington, Department of Economics Abstract: This paper reconciles two widely-used decompositions of GDP into trend and cycle that yield starkly different results. Beveridge-Nelson (BN) implies that a stochastic trend accounts for most of the variation in output, while Unobserved-Components (UC) implies cyclical variation is dominant. Which is correct has broad implications for the relative importance of real versus nominal shocks. We show the difference arises from the restriction imposed in UC that trend and cycle innovations are uncorrelated. When this restriction is relaxed, the UC decomposition is identical to the BN decompositions. Furthermore, the zero correlation restriction can be rejected for U.S. quarterly GDP, with the estimated correlation being -0.9. Date: 2003-05 Published in Review of Economics and Statistics, Volume There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:udb:wpaper:uwec-2002-18-p Access Statistics for this paper More papers in Working Papers from University of Washington, Department of Economics Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.