The Beveridge-Nelson decomposition based on autoregressive models produces estimates of the output gap that are strongly at odds with widely-held beliefs about transitory movements in economic activity. This is due to parameter estimates implying a high signal-to-noise ratio in terms of the...

The Beveridge-Nelson (BN) trend-cycle decomposition based on autoregressive forecasting models of U.S. quarterly real GDP growth produces estimates of the output gap that are strongly at odds with widely-held beliefs about the amplitude, persistence, and even sign of transitory movements in...