Trend in cycle or cycle in trend? New structural identifications for unobserved components models of U.S. real GDP

Mardi Dungey, Jan P. A. M. Jacobs, Jing Tian, Simon van Norden

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Abstract

A well-documented property of the Beveridge–Nelson trend–cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where permanent innovations enter the cycle or transitory innovations enter the trend, and that identification restrictions are necessary to make this structural distinction. A reduced-form unrestricted version is compatible with either option, but cannot distinguish which is relevant. We discuss economic interpretations and implications using U.S. real GDP data.
Original languageEnglish
Pages (from-to)776-790
Number of pages15
JournalMacroeconomic Dynamics
Volume19
Issue number4
DOIs
Publication statusPublished - Jun-2015

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