An Unobserved Components Model That Yields Business and Medium-Run Cycles
Journal of Money, Credit, and Banking, Forthcoming
28 Pages Posted: 24 Apr 2011 Last revised: 25 Feb 2014
Date Written: August 20, 2012
Abstract
We generalize the Unobserved Components (UC) model to allow the permanent component to have different dynamics than the transitory components when decomposing US economic activity using a multivariate UC model of (log) output, consumption and investment. We find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components. Our approach provides an alternative explanation for the growth cycles identified by Comin and Gertler (2006) that is related to the cyclical movements in technology, in a framework consistent with the Beveridge-Nelson (1981) decomposition.
Keywords: Unobserved Components model, trend-cycle decomposition
JEL Classification: C32, E32
Suggested Citation: Suggested Citation