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....

The main purpose of this paper is to scrutinize the time-varying relative importance of the permanent and the transitory shocks to the U.S. real GDP. After accounting for the cointegration relation between real GDP, consumption, and investment, we find that i) the real permanent shock played a...