Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and “sudden stops” in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets,...

When a certain procedure is applied to extract two component processes from a single observed process, it is necessary to impose a set of restrictions that defines two components. One popular restriction is the assumption that the shocks to the trend and cycle are orthogonal. Another is the assumption that the trend is a pure random walk process. The unobserved components (UC) model (Harvey, 19...

The Hodrick-Prescott filter represents one of the most popular method for trendcycle extraction in macroeconomic time series. In this paper we provide a multivariate generalization of the Hodrick-Prescott filter, based on the seemingly unrelated time series approach. We first derive closed-form expressions linking the signal-noise matrix ratio to the parameters of the VARMA representation of th...

This paper discusses a few interpretative issues arising from trend-cycle decompositions with correlated components. We determine the conditions under which correlated components may originate from: underestimation of the cyclical component; a cycle in growth rates, rather than in the levels; the hysteresis phenomenon; permanenttransitory decompositions, where the permanent component has richer...

In this paper, we present a new approach to trend/cycle decomposition. The trend of an integrated time series is estimated using the conditional expectation of the steady-state level of the series. Given a nonlinear forecasting model, this steady-state approach can differ in important ways from the related long-horizon forecast decomposition proposed by Beveridge and Nelson (1981). We use gener...

It is a pleasure to be at this conference on business cycles organised by the Melbourne Institute, which has a well-deserved reputation as a centre of expertise on business-cycle research in Australia. Business cycles have always been with us. They pre-date the rise of attempts at active stabilisation policies in the second half of the twentieth century. They persisted through the heyday of att...