Article2003

Nonlinear permanent – temporary decompositions in macroeconomics and finance

41 citations0/0 files storedThe Economic Journal

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Monetary Policy and Economic Impact Economic theories and models Unemployment and Economic Growth

Abstract

We suggest a method of decomposing univariate and multivariate nonlinear processes into their permanent and temporary components, extending the analysis of Beveridge and Nelson (1981) and Stock and Watson (1987). We provide applications in the univariate nonlinear case to recent work on nonlinearities in the US business cycle, and in the multivariate nonlinear case to recent work on asymmetric nonlinear adjustment in the term structure of interest rates for the US. The business cycle results suggest that the method may be particularly useful in future research on output fluctuations.

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References

1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 1997Postwar U.S. Business Cycles: An Empirical Investigation 1990Forecasting, Structural Time Series Models and the Kalman Filter 1981A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the ‘business cycle’1988Testing for Common Trends 1998Unit-Root Tests and Asymmetric Adjustment With an Example Using the Term Structure of Interest Rates 1997Threshold Cointegration 1984Are Economic Time Series Asymmetric over the Business Cycle?

Cited by

2008Trend/cycle decomposition of regime-switching processes 2008Threshold Adjustment in Deviations from the Law of One Price 2005Asymmetry in the Business Cycle: Friedman's Plucking Model with Correlated Innovations 2008Nonlinear Phillips curve, NAIRU and monetary policy rules

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