Let’s takeabreak:TrendsandcyclesinUSrealGDP

Trend–cycledecompositionsforUSrealGDPsuchastheunobservedcomponents models,theBeveridge–Nelsondecomposition,theHodrick–Prescottfilterandothers yield verydifferentcycleswhichbearlittleresemblancetotheNBERchronology, ascribesmuchmovementstothetrendleavinglittletothecycle,andsomeimplya negativecorrelationbetweenthenoisetothecycleandthetrend.Wearguethatthese featuresareartifactscreatedbytheneglectofachangeintheslopeofthetrend function.Oncethisisaccountedfor,allmethodsyieldthesamecyclewithatrendthatis non-stochasticexceptforafewperiodsaround1973.Thecycleismoreimportantin magnitudethanpreviouslyreportedanditaccordswellwiththeNBERchronology.Our results arecorroboratedusinganalternativetrend–cycledecompositionbasedona generalizedunobservedcomponentsmodelswitherrorshavingamixtureofnormals distributionforboththeslopeofthetrendfunctionandthecyclicalcomponent.