Trend-Cycle-Seasonal Interactions: Identification and Estimation

39 Pages Posted: 8 Sep 2017

See all articles by Irma Hindrayanto

Irma Hindrayanto

De Nederlandsche Bank

Jan P. A. M. Jacobs

University of Groningen - Faculty of Economics and Business

Denise R. Osborn

University of Manchester - School of Social Sciences; University of Tasmania

Jing Tian

University of Tasmania; Financial Research Network (FIRN)

Date Written: September 6, 2017

Abstract

Economists typically use seasonally adjusted data in which the assumption is imposed that seasonality is uncorrelated with trend and cycle. The importance of this assumption has been highlighted by the Great Recession. The paper examines an unobserved components model that permits non-zero correlations between seasonal and nonseasonal shocks. Identification conditions for estimation of the parameters are discussed from the perspectives of both analytical and simulation results. Applications to UK household consumption expenditures and US employment reject the zero correlation restrictions and also show that the correlation assumptions imposed have important implications about the evolution of the trend and cycle in the post-Great Recession period.

Keywords: Trend-Cycle-Seasonal Decomposition, Unobserved Components, Seasonal Adjustment, Employment, Great Recession

JEL Classification: C22, E24, E32, E37, F01

Suggested Citation

Hindrayanto, Irma and Jacobs, Jan P.A.M. and Osborn, Denise R. and Tian, Jing, Trend-Cycle-Seasonal Interactions: Identification and Estimation (September 6, 2017). CAMA Working Paper No. 57/2017. Available at SSRN: https://ssrn.com/abstract=3033388 or http://dx.doi.org/10.2139/ssrn.3033388

Irma Hindrayanto

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Jan P.A.M. Jacobs (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Denise R. Osborn

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Jing Tian

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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