monash_2361.pdf (391.67 kB)
Single Source of Error State Space Approach to the Beveridge Nelson Decomposition
journal contribution
posted on 2017-06-06, 02:46 authored by Anderson, Heather M., Low, Chin Nam, Snyder, Ralph D.A well known property of the Beveridge Nelson decomposition is that the innovations in the permanent and transitory components are perfectly correlated. We use a single source of error state space model to exploit this property and perform a Beveridge Nelson decomposition. The single source of error state space approach to the decomposition is computationally simple, and in contrast to other methods of performing the Beveridge-Nelson decomposition, it incorporates the direct estimation of the long-run multiplier.