Some Reflections on Trend-Cycle Decompositions with Correlated Components

Tommaso Proietti

Econometrics from University Library of Munich, Germany

Abstract: This paper discusses a few interpretative issues arising from trend- cycle decompositions with correlated components. We determine the conditions under which correlated components may originate from: underestimation of the cyclical component; a cycle in growth rates, rather than in the levels; the hysteresis phenomenon; permanent- transitory decompositions, where the permanent component has richer dynamics than a pure random walk. Moreover, the consequences for smoothing and signal extraction are discussed: in particular, we establish that a negative correlation implies that future observations carry most of the information needed to assess cyclical stance. As a result, the components will be subject to high revisions. The overall conclusion is that the characterisation of economic fluctuations in macroeconomic time series largely remains an open issue.

Keywords: Kalman Filter and Smoother; Signal Extraction; Frequency Domain Estimation; Hysteresis; Permanent-Transitory Decomposition; Revisions (search for similar items in EconPapers)
JEL-codes: C22 C5 E32 (search for similar items in EconPapers)
Date: 2002-09-17
New Economics Papers: this item is included in nep-ecm and nep-ets
Note: Type of Document - pdf
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Citations: View citations in EconPapers (8)

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Working Paper: Some Reflections on Trend-Cycle Decompositions with Correlated Components (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpem:0209002

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