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Economic Growth and Business Cycles: A Critical Comment on Detrending Time Series - REVISED VERSIO


Schenk-Hoppé, Klaus Reiner (2001). Economic Growth and Business Cycles: A Critical Comment on Detrending Time Series - REVISED VERSIO. Working paper series / Institute for Empirical Research in Economics No. 54, University of Zurich.

Abstract

In this paper we pursue an approach based on economic theory to illustrate possible shortcomings of widely-used detrending methods. Wenanalyze a simple model of economic growth and business cycles in which investment and technical progress are stochastic. The Hodrick-Prescottnand the Baxter-King filter are shown to detect spurious business cycles which are not related to actual cycles in the model. Our results cast doubts on the validity of commonly-accepted stylized business cycle facts. We also discuss the relation of business-cycle dating based on indicators of economic activity, as e.g. applied by the NBER, and the detrending results.

In this paper we pursue an approach based on economic theory to illustrate possible shortcomings of widely-used detrending methods. Wenanalyze a simple model of economic growth and business cycles in which investment and technical progress are stochastic. The Hodrick-Prescottnand the Baxter-King filter are shown to detect spurious business cycles which are not related to actual cycles in the model. Our results cast doubts on the validity of commonly-accepted stylized business cycle facts. We also discuss the relation of business-cycle dating based on indicators of economic activity, as e.g. applied by the NBER, and the detrending results.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2001
Deposited On:29 Nov 2011 21:26
Last Modified:05 Apr 2016 15:10
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: http://doi.org/10.5167/uzh-51956

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