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Business Cycle Trends, Cycles And Growth Revisited: With Applications To G7 Economies

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  • PEIJIE WANG
  • PING WANG

Abstract

This paper examines the behaviour of G7 economies and decomposes their GDP into trend and cycle components using the Kalman filter. The general model of the paper encompasses a number of alternative specifications about trend growth, therefore accommodating diverse views on growth. The business cycle characteristics of G7 economies are then discussed, compared and deliberated in this framework. The empirical results overwhelmingly favor a mean‐reverting stochastic process for the growth rate, the general and unrestricted specification of the paper, across G7 countries, though the restrictions are statistically rejected in less than half of the cases. Further reflection on the properties of cycles makes the specifications and the results of this study more reasonable in capturing the characteristics of GDP series, and contributes to solving the controversies in model specifications in some previous studies.

Suggested Citation

  • Peijie Wang & Ping Wang, 2007. "Business Cycle Trends, Cycles And Growth Revisited: With Applications To G7 Economies," Australian Economic Papers, Wiley Blackwell, vol. 46(3), pages 282-299, September.
    • Handle: RePEc:bla:ausecp:v:46:y:2007:i:3:p:282-299
    DOI: 10.1111/j.1467-8454.2007.00319.x
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    References listed on IDEAS

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    1. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 111-156, National Bureau of Economic Research, Inc.
    2. Martin Eichenbaum & Kenneth I. Singleton, 1986. "Do Equilibrium Real Business Cycle Theories Explain Postwar US Business Cycles?," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 91-146, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Marcus Mossfeldt & Par Osterholm, 2011. "The persistent labour-market effects of the financial crisis," Applied Economics Letters, Taylor & Francis Journals, vol. 18(7), pages 637-642.

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