We study how the output gap affects potential output over time-i.e., the dynamic hysteresis effect. To do so, we introduce novel unobserved components (UC) models that consider hysteresis as a sequence of lagged effects, thus separating the long-run recession-induced adverse effects from other...

One important question in the DSGE literature is whether we should detrend data when estimating the parameters of a DSGE model using the moment method. It has been common in the literature to detrend data in the same way the model is detrended. Doing so works relatively well with linear models,...

In this paper we investigate whether the dynamic properties of the U.S. business cycle have changed in the last fifty years. For this purpose we develop a flexible business cycle indicator that is constructed from a moderate set of macroeconomic time series. The coincident economic indicator is...

This paper reconciles two widely used trend-cycle decompositions of GDP that give markedly different estimates: the correlated unobserved components model yields output gaps that are small in amplitude, whereas the Hodrick-Prescott (HP) filter generates large and persistent cycles. By embedding...

Assessing potential output and the output gap is essential for policy-making and fiscal surveillance. The European Commission proposes a production function methodology that involves the estimation of two classes of Gaussian state space models. This paper presents the R package RGAP which...

We propose a multivariate simultaneous unobserved components framework to determine the two-sided interactions between structural trend and cycle innovations. We relax the standard assumption in unobserved components models that trends are only driven by permanent shocks and cycles are only...

This paper presents a range of unobserved components models to study productivity dynamics in the United Kingdom. We introduce a set of univariate and bivariate models that allow for shocks between the trend and the cycle to be correlated, and use Bayesian sampling techniques to estimate the...

This paper proposes a multi-level dynamic factor model to identify common components in output gap estimates. We pool multiple output gap estimates for 157 countries and decompose them into one global, eight regional, and 157 country-specific cycles. Our approach easily deals with mixed...

This paper presents a framework for empirical analysis of dynamic macroeconomic models using Bayesian filtering, with a specific focus on the state-space formulation of New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) models with multiple regimes. We outline the theoretical...

We propose a multivariate Bayesian state space model to identify potential growth and the output gap consistent with the dynamics of the underlying production sectors of the economy and those of inflation and the labor market. Our approach allows us to decompose economic fluctuations and...