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Single Source of Error State Space Approach to the Beveridge Nelson Decomposition

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journal contribution
posted on 06.06.2017, 02:46 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.

History

Year of first publication

2004

Series

Department of Econometrics and Business Statistics