DP782 Detrending and Business Cycle Facts

Author(s):	Fabio Canova
Publication Date:	June 1993
Keyword(s):	Business Cycles, Detrending, Filters, Labour Hoarding, Stylized Facts, Technology Shocks
JEL(s):	B41, E32
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=782

This paper examines the business cycle properties of a small set of real US macroeconomic time series using a variety of detrending methods. It is shown: (i) that both quantitatively and qualitatively `stylized facts' of US business cycles vary widely across detrending methods; (ii) that alternative detrending filters extract different types of information from the original series; and (iii) the qualitative response of consumption, investment, hours and productivity to a typical shock in GNP have, depending on the method used, two types of patterns -- one consistent with a Real Business Cycle model and one consistent with a Neo-Keynesian labour-hoarding story. Implications and suggestions for current macroeconomic practice are also presented.