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Testing the Validity of Assumptions of UC-ARIMA Models for Trend-Cycle Decompositions

Author

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  • Marian Vavra

    (National Bank of Slovakia, Research Department)

Abstract

This article tests the validity of underlying assumptions (i.e. linearity and normality) of UC-ARIMA models for trend-cycle decompositions using macroeconomic variables from 16 OECD countries. Clear and overwhelming evidence of non-normality and non-linearity is found. Our results thus cast doubts on the adequacy of the filtered cyclical component from this type of model.

Suggested Citation

  • Marian Vavra, 2016. "Testing the Validity of Assumptions of UC-ARIMA Models for Trend-Cycle Decompositions," Working and Discussion Papers WP 4/2016, Research Department, National Bank of Slovakia.
    • Handle: RePEc:svk:wpaper:1040
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Normality; Lobato-Velasco test; Linearity; Portmanteau Q test; Trend-cycle decomposition; UC-ARIMA models;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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