A note on the two assumptions of standard unobserved components models

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Abstract

In this note, I consider a general class of unobserved components (UC) models and derive a relevant inequality. This inequality implies that either of the two assumptions of standard UC models, namely, a random walk trend and uncorrelated shocks, is not satisfied if the impulse response measure introduced by [Campbell, J.Y. and N.G. Mankiw, 1987a. Are output fluctuations transitory? Quarterly Journal of Economics 102, 857-880, Campbell, J.Y. and N.G. Mankiw, 1987b. Permanent and transitory components in macroeconomic fluctuations, American Economic Review (Papers and Proceedings) 77, 111-117] is greater than 1.

Original languageEnglish
Pages (from-to)123-125
Number of pages3
JournalEconomics Letters
Volume100
Issue number1
DOIs
Publication statusPublished - 2008 Jul 1
Externally publishedYes

Keywords

  • C22
  • C49
  • Cycle
  • E32
  • Impulse response
  • Trend
  • Unobserved components model

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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