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Trends and cycles under changing economic conditions

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  • Duarte, Cláudia
  • Maria, José R.
  • Sazedj, Sharmin

Abstract

The identification of trends and cycles is often a challenging task under sizeable changes in economic conditions. Business cycles have unique features, varying in duration, intensity and across countries. We propose an unobserved components model with flexible product and labour market equations to cope with evolving economic conditions, namely time-varying inflation processes and labour share trends. Moreover, we augment the information set with data-driven low-frequency movements in real variables before initiating a joint estimation of all unobserved components. We use the same model to establish an international comparison between the euro area and Portugal covering 40 years of data. We conclude that Portugal witnessed (i) a steeper potential output deceleration since the 1990s, driven initially by productivity and afterwards also by the labour and capital inputs; (ii) a pervasively higher volatility in labour and product markets; and (iii) a long-lived interruption in convergence trends after the 2000s.

Suggested Citation

  • Duarte, Cláudia & Maria, José R. & Sazedj, Sharmin, 2020. "Trends and cycles under changing economic conditions," Economic Modelling, Elsevier, vol. 92(C), pages 126-146.
    • Handle: RePEc:eee:ecmode:v:92:y:2020:i:c:p:126-146
    DOI: 10.1016/j.econmod.2020.06.011
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    Cited by:

    1. Júlio, Paulo & Maria, José R., 2024. "Trends and cycles during the COVID-19 pandemic period," Economic Modelling, Elsevier, vol. 139(C).
    2. Ana Filipa Correia & José R. Maria & Vanda G. Cunha & Fernando Heitor & Luis Saramago, 2020. "Exchange Rate Cooperation Agreement between Portugal and Cabo Verde: characterisation, developments and challenges after 20 years," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    3. Sara Serra & João Quelhas, 2023. "The inflation process in Portugal: the role of price spillovers," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    4. Cláudia Duarte & José R. Maria & Sharmin Sazedj, 2021. "Cyclical outputs and structural budget balances," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    5. Cláudia Braz & Maria Manuel Campos, 2021. "Challenges in measuring fiscal effects," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    Potential output; Simultaneous equation models; Trends and cycles; Bayesian estimation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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