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Inference on the Correlation between Permanent and Transitory Shocks for Unidentified Unobserved Components Models

Daisuke Nagakura

出版	SSRN, 2009
URL	http://books.google.com.hk/books?id=n3fWzgEACAAJ&hl=&source=gbs_api

註釋

In this paper, I propose a simple methodology for inferring the correlation between permanent and transitory shocks in unidentified unobserved components (UC) models, where the correlation is not identified. However, I show that there is an upper bound of the correlation implied from the unrestricted ARIMA reduced form. I apply the proposed methodology to GDP data of six G7 countries. It is found that the implied upper bounds of the correlation range from -0:75 to 0:99 depending on countries. This means that the two shocks are highly negatively correlated for these G7 countries. The paper also shows that, in the estimation of UC models,imposing a proper identification restriction is important for the estimation of trend and cycle by the estimated UC models.