The objective of this paper is to suggest a new predictive system for international trade, based on an unobserved component model. We employ the predictive system developed by Pastor and Stambaugh (2009), which is unlike other conventional predictive regression models. This paper derives an...

This paper provides an underlying reason for why recent Bayesian trend-cycle decompositions of U.S. real GDP differ despite using identical unobserved components models. We stress that a pitfall in estimating unobserved components models accounts for the divergence in the empirical conclusions....