A New Method for Combining Detrending Techniques with Application to Business Cycle Synchronization of the New EU Members

Magyar Nemzeti Bank Working Paper No. 2005/5

38 Pages Posted: 2 Sep 2005

See all articles by Zsolt Darvas

Zsolt Darvas

Budapest University of Economic Sciences and Public Administration

Gabor Vadas

National Bank of Hungary

Date Written: August 2005

Abstract

Decomposing output into trend and cyclical components is an uncertain exercise and depends on the method applied. It is an especially dubious task for countries undergoing large structural changes, such as transition countries. Despite their deficiencies, however, univariate detrending methods are frequently adopted for both policy oriented and academic research. This paper proposes a new procedure for combining univariate detrending techniques which is based on revisions of the estimated output gaps adjusted by the variance of and the correlation among output gaps. The procedure is applied to the study of the similarity of business cycles between the euro area and new EU Member States.

Keywords: Combination, detrending, new EU members, OCA, output gap, revision

JEL Classification: C22, E32

Suggested Citation

Darvas, Zsolt and Vadas, Gabor, A New Method for Combining Detrending Techniques with Application to Business Cycle Synchronization of the New EU Members (August 2005). Magyar Nemzeti Bank Working Paper No. 2005/5, Available at SSRN: https://ssrn.com/abstract=796904 or http://dx.doi.org/10.2139/ssrn.796904

Zsolt Darvas (Contact Author)

Budapest University of Economic Sciences and Public Administration ( email )

Budapest H-1093
Hungary

HOME PAGE: http://www.uni-corvinus.hu/darvas

Gabor Vadas

National Bank of Hungary ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

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