Output Fluctuations in the G-7: An Unobserved Components Approach

39 Pages Posted: 3 Jun 2007 Last revised: 22 Jun 2010

See all articles by Sinchan Mitra

Sinchan Mitra

School of Economics, University of Queensland

Tara M. Sinclair

George Washington University - Department of Economics; George Washington University - Elliott School of International Affairs (ESIA); George Washington University - Institute For International Economic Policy (GWIIEP); George Washington University - Research Program on Forecasting; George Washington University - George Washington Institute of Public Policy (GWIPP); Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA); Halle Institute for Economic Research

Date Written: June 14, 2010

Abstract

This paper proposes a multivariate unobserved components model to simultaneously decompose the real GDP for each of the G-7 countries into their respective trend and cycle components. In contrast to previous literature, our model allows for explicit correlation between all the contemporaneous trend and cycle shocks. We find that all the G-7 countries have highly variable stochastic permanent components for output, even once we allow for structural breaks. We also find that common restrictions on the correlations between trend and cycle shocks are rejected by the data. In particular, we find that correlations across permanent and transitory shocks are important both within and across countries.

Keywords: Trend-Cycle Decompositions, Business Cycles, Correlations, Real GDP

JEL Classification: C32, E32, 057

Suggested Citation

Mitra, Sinchan and Sinclair, Tara M., Output Fluctuations in the G-7: An Unobserved Components Approach (June 14, 2010). Available at SSRN: https://ssrn.com/abstract=990596 or http://dx.doi.org/10.2139/ssrn.990596

Sinchan Mitra

School of Economics, University of Queensland ( email )

Brisbane, QLD 4072
Australia

Tara M. Sinclair (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
Monroe Hall Suite 340
Washington, DC 20052
United States
202-944-7988 (Phone)
202-994-6147 (Fax)

HOME PAGE: http://home.gwu.edu/~tsinc/

George Washington University - Elliott School of International Affairs (ESIA) ( email )

2201 G Street, N.W.
Washington, DC 20052
United States
202-994-7988 (Phone)
202-994-6147 (Fax)

HOME PAGE: http://home.gwu.edu/~tsinc/

George Washington University - Institute For International Economic Policy (GWIIEP) ( email )

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Suite 502
Washington, DC 20052
United States

George Washington University - Research Program on Forecasting ( email )

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Washington, DC 20052
United States

George Washington University - George Washington Institute of Public Policy (GWIPP) ( email )


United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
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D-06017 Halle, 06108
Germany

HOME PAGE: http://www.dpe-halle.de/asp/person.asp?xtr&Lang=e

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