monash_2361.pdf (391.67 kB)
Single Source of Error State Space Approach to the Beveridge Nelson Decomposition
journal contributionposted 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.