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Is it one break or ongoing permanent shocks that explains U.S. real GDP?

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  • Luo, Sui
  • Startz, Richard

Abstract

The relative importance of permanent versus cyclical shocks to GDP has been found to depend on the presence or absence of a single break in mean growth. We estimate unobserved components models conditional on a trend break having occurred in any specified quarter and use the Bayesian model averaging to combine the conditional estimates. We estimate a break occurred around 2006:1. Allowing for a break significantly reduces estimates of trend variance. However, enough spread remains in the posterior distribution to indicate that available data does not definitively settle the question of the relative importance of trend versus cycle.

Suggested Citation

  • Luo, Sui & Startz, Richard, 2014. "Is it one break or ongoing permanent shocks that explains U.S. real GDP?," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 155-163.
    • Handle: RePEc:eee:moneco:v:66:y:2014:i:c:p:155-163
    DOI: 10.1016/j.jmoneco.2014.04.016
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    References listed on IDEAS

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    1. James C. Morley & Charles R. Nelson & Eric Zivot, 2003. "Why Are the Beveridge-Nelson and Unobserved-Components Decompositions of GDP So Different?," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 235-243, May.
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    4. Kum Hwa Oh & Eric Zivot, 2006. "The Clark Model with Correlated Components," Working Papers UWEC-2006-06, University of Washington, Department of Economics.
    5. Dan Ben-David & David H. Papell, 1998. "Slowdowns And Meltdowns: Postwar Growth Evidence From 74 Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 561-571, November.
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    7. Eo, Yunjong & Morley, James C., 2008. "Likelihood-Based Confidence Sets for the Timing of Structural Breaks," MPRA Paper 10372, University Library of Munich, Germany.
    8. de Pooter, M.D. & Ravazzolo, F. & Segers, R. & van Dijk, H.K., 2008. "Bayesian near-boundary analysis in basic macroeconomic time series models," Econometric Institute Research Papers EI 2008-13, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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