Abstract
Trend-cycle decompositions for US real GDP such as the unobserved components models, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter and others yield very different cycles which bear little resemblance to the NBER chronology, ascribes much movements to the trend leaving little to the cycle, and some imply a negative correlation between the noise to the cycle and the trend. We argue that these features are artifacts created by the neglect of a change in the slope of the trend function. Once this is accounted for, all methods yield the same cycle with a trend that is non-stochastic except for a few periods around 1973. The cycle is more important in magnitude than previously reported and it accords well with the NBER chronology. Our results are corroborated using an alternative trend-cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component.
| Original language | English |
|---|---|
| Pages (from-to) | 749-765 |
| Number of pages | 17 |
| Journal | Journal of Monetary Economics |
| Volume | 56 |
| Issue number | 6 |
| DOIs | |
| Publication status | Published - 2009 Sep |
| Externally published | Yes |
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Keywords
- Beveridge-Nelson decomposition
- Non-Gaussian filtering
- Structural change
- Trend-cycle decomposition
- Unobserved components model
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
Let's take a break : Trends and cycles in US real GDP. / Perron, Pierre; Wada, Tatsuma.
In: Journal of Monetary Economics, Vol. 56, No. 6, 09.2009, p. 749-765.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Let's take a break
T2 - Trends and cycles in US real GDP
AU - Perron, Pierre
AU - Wada, Tatsuma
PY - 2009/9
Y1 - 2009/9
N2 - Trend-cycle decompositions for US real GDP such as the unobserved components models, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter and others yield very different cycles which bear little resemblance to the NBER chronology, ascribes much movements to the trend leaving little to the cycle, and some imply a negative correlation between the noise to the cycle and the trend. We argue that these features are artifacts created by the neglect of a change in the slope of the trend function. Once this is accounted for, all methods yield the same cycle with a trend that is non-stochastic except for a few periods around 1973. The cycle is more important in magnitude than previously reported and it accords well with the NBER chronology. Our results are corroborated using an alternative trend-cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component.
AB - Trend-cycle decompositions for US real GDP such as the unobserved components models, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter and others yield very different cycles which bear little resemblance to the NBER chronology, ascribes much movements to the trend leaving little to the cycle, and some imply a negative correlation between the noise to the cycle and the trend. We argue that these features are artifacts created by the neglect of a change in the slope of the trend function. Once this is accounted for, all methods yield the same cycle with a trend that is non-stochastic except for a few periods around 1973. The cycle is more important in magnitude than previously reported and it accords well with the NBER chronology. Our results are corroborated using an alternative trend-cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component.
KW - Beveridge-Nelson decomposition
KW - Non-Gaussian filtering
KW - Structural change
KW - Trend-cycle decomposition
KW - Unobserved components model
UR - http://www.scopus.com/inward/record.url?scp=70349112613&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=70349112613&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2009.08.001
DO - 10.1016/j.jmoneco.2009.08.001
M3 - Article
AN - SCOPUS:70349112613
VL - 56
SP - 749
EP - 765
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
SN - 0304-3932
IS - 6
ER -