Garratt, Anthony and Robertson, D. and Wright, Stephen (2006) Permanent vs transitory components and economic fundamentals. Journal of Applied Econometrics 21 (4), pp. 521-542. ISSN 0883-7252.
Abstract
Any non‐stationary series can be decomposed into permanent (or ‘trend’) and transitory (or ‘cycle’) components. Typically some atheoretic pre‐filtering procedure is applied to extract the permanent component. This paper argues that analysis of the fundamental underlying stationary economic processes should instead be central to this process. We present a new derivation of multivariate Beveridge–Nelson permanent and transitory components, whereby the latter can be derived explicitly as a weighting of observable stationary processes. This allows far clearer economic interpretations. Different assumptions on the fundamental stationary processes result in distinctly different results, but this reflects deep economic uncertainty. We illustrate with an example using Garratt et al.'s (2003a) small VECM model of the UK economy.
Metadata
| Item Type: | Article |
|---|---|
| School: | Birkbeck Faculties and Schools > Faculty of Science > School of Computing and Mathematical Sciences |
| Depositing User: | Sarah Hall |
| Date Deposited: | 18 May 2020 14:26 |
| Last Modified: | 09 Aug 2023 12:48 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/31960 |
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