Trend Dominance in Macroeconomic Fluctuations

Shibayama, Katsuyuki (2015) Trend Dominance in Macroeconomic Fluctuations. Discussion paper. School of Economics, University of Kent at Canterbury, Kent, UK (Full text available)

Abstract

This paper investigates multivariate Beveridge-Nelson decomposition of key macro aggregate data. We find (a) inflation seems to be dominated by its trend component, and, perhaps as a result of this, the short-term interest rate is also trend dominated; and (b) consumption also seems to be dominated by its trend component perhaps as the permanent income hypothesis suggests. What is new here is that, although the difficulty of rejecting a unit root for these variables has been long recognized, we show that these unit root processes account for a large share of the variable fluctuations. This result raises a concern about the convention that the non-stationary data is detrended in standard DSGE-type structural estimation, in the sense that a significant portion of data variation actually may come from the trend components.

Item Type: Monograph (Discussion paper)
Uncontrolled keywords: Beveridge-Nelson Decomposition; DSGE; VECM; Detrending
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Katsuyuki Shibayama
Date Deposited: 21 Dec 2018 05:15 UTC
Last Modified: 21 Dec 2018 05:15 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/71412 (The current URI for this page, for reference purposes)
Shibayama, Katsuyuki: https://orcid.org/0000-0003-3472-398X
  • Depositors only (login required):

Downloads

Downloads per month over past year