We investigate the importance of trend inflation and the real-activity gap for explaining observed inflation variation in G7 countries since 1960. Our results are based on a bivariate unobserved-components model of inflation and unemployment in which inflation is decomposed into a stochastic...

A large literature studies the information contained in national-level economic indicators, such as financial and aggregate economic activity variables, for forecasting U.S. business cycle phases (expansions and recessions.) In this paper, we investigate whether there is additional information...

The national economy is often described as having a business cycle over which aggregate output enters and exits distinct expansion and recession phases. Analogously, national employment cycles in and out of its own expansion and contraction phases, which are closely related to the business...

In this paper, we present a new approach to trend/cycle decomposition under the assumption that the trend is the permanent component and the cycle is the transitory component of an integrated time series. The permanent component is defined as the steady-state level of the series, a definition...

This paper investigates the nature of U.S. business cycle asymmetry using a dynamic factor model of output, investment, and consumption. We identify a common stochastic trend and common transitory component by embedding the permanent income hypothesis within a simple growth model....

This paper evaluates the ability of formal rules to establish U.S. business cycle turning point dates in real time. We consider two approaches, a nonparametric algorithm and a parametric Markov-switching dynamic-factor model. In order to accurately assess the real-time performance of these...

We investigate the power and size performance of unit root tests when the data undergo Markov regime switching. All tests, including those robust to a single break in trend growth rate, have low power against a process with a Markov-switching trend. Under the null hypothesis, we find previously...

Following Hamilton (1989), estimation of Markov regime-switching regressions nearly always relies on the assumption that the latent state variable controlling the regime change is exogenous. We incorporate endogenous switching into a Markov-switching regression and develop strategies for...

This paper considers the ability of simulated data from linear and nonlinear time-series models to reproduce features in U.S. real GDP data related to business cycle phases. We focus our analysis on a number of linear ARIMA models and nonlinear Markov-switching models. To determine the timing of...

We measure the relative contribution of the deviation of real activity from its equilibrium (the gap), “supply shock” variables, and long-horizon inflation forecasts for explaining the U.S. inflation rate in the post-war period. For alternative specifications for the inflation driving...