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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 (KAR id:71412)

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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: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Katsuyuki Shibayama
Date Deposited: 21 Dec 2018 05:15 UTC
Last Modified: 16 Feb 2021 14:01 UTC
Resource URI: (The current URI for this page, for reference purposes)
Shibayama, Katsuyuki:
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