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Discussion Paper Details

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Title: Information, Forecasts and Measurement of the Business Cycle

Author(s): George W. Evans and Lucrezia Reichlin

Publication Date: January 1993

Keyword(s): Business Cycles, Cycle, Forecast, Granger Casuality, Information, Integrated Series and Trend

Programme Area(s): International Macroeconomics

Abstract: The Beveridge-Nelson (BN) technique provides a forecast-based method of decomposing a variable such as output, into trend and cycle when the variable is integrated of order one (I (1)). This paper considers the multivariate generalization of the BN decomposition when the information set includes other I (1) and/or stationary variables. We show that the relative importance of the cyclical component depends on the information set, and in particular that multivariate BN decompositions necessarily ascribe more importance to the cyclical component than does the univariate decomposition, provided the information set includes a variable which Granger-causes output. We illustrate the results for post-war data for the United States.

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Bibliographic Reference

Evans, G and Reichlin, L. 1993. 'Information, Forecasts and Measurement of the Business Cycle'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=756