A Multivariate Unobserved Components Model of Cyclical Activity

Reserve Bank of New Zealand Discussion Paper No. DP2000/04

27 Pages Posted: 10 Nov 2003

Date Written: January 2000

Abstract

This paper presents results from the estimation of a multivariate unobserved components model of cyclical activity. The model is motivated by a desire to let the data speak as much as possible, and hence to avoid imposing ad hoc and unjustifiable assumptions about trends and cycles. Estimated over the period 1970:1 to 1999:3 via the Kalman filter and maximum likelihood, the model identifies a common, trend-reverting component to real output, unemployment and capacity utilisation. The structure of the model allows an interesting factor interpretation to be put on the estimate of the output gap. These estimates are consistent with priors, but there is no consistent match to any one simple smoother such as the HP filter.

JEL Classification: C32, E32

Suggested Citation

Scott, Alasdair M., A Multivariate Unobserved Components Model of Cyclical Activity (January 2000). Reserve Bank of New Zealand Discussion Paper No. DP2000/04, Available at SSRN: https://ssrn.com/abstract=348202 or http://dx.doi.org/10.2139/ssrn.348202

Alasdair M. Scott (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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