Detrending Methods and Stylized Facts of Business Cycles in Norway - an International Comparison

Abstract

This paper analyses the stylized facts of business cycles in Norway, by comparing different detrending methods. As the choice of the appropriate data transformation depends on the nature of the underlying dynamic properties of the time series, a set of unit root tests are first applied to the data. The detrended data are analysed, both in the time domain and the frequency domain. The evidence suggests that whereas some variables (e.g. consumption and investment) behave consistently procyclically with GDP, for other variables (e.g. real wage and prices), the business cycle properties vary considerably with the detrending methods used. The results are evaluated from a real business cycle perspective, but overall, there is little evidence to support a (supply driven) real business cycle. Symmetries in business cycles are finally analysed by comparing the business cycles in Norway and selected countries.

Keywords: unit roots, trend-cycle estimation, stylized facts, real business cycles

JEL Classification: C20, E32