Why Are Bayesian Trend-Cycle Decompositions of U.S. Real GDP So Different?
19 Pages Posted: 2 Feb 2017 Last revised: 8 May 2018
Date Written: April 1, 2018
This paper provides an underlying reason for why recent Bayesian trend-cycle decompositions of U.S. real GDP differ despite using identical unobserved components models. We stress that a pitfall in estimating unobserved components models accounts for the divergence in the empirical conclusions. Our results also show that the decline in the long-run growth rate of real GDP has been slow and gradual rather than abrupt during the post-World War II period.
Keywords: Trend-Cycle Decomposition, Unobserved Components Model, Structural Break, Gibbs Sampling
JEL Classification: C11, E32
Suggested Citation: Suggested Citation