NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating Sectoral Cycles Using Cointegration and Common Features

Robert F. Engle, Joao Victor Issler

NBER Working Paper No. 4529
Issued in November 1993
NBER Program(s):   EFG

This paper investigates the degree of short run and long run comovement in U.S. sectoral output data by estimating sectoral trends and cycles. A theoretical model based on Long and Plosser (1983) is used to derive a reduced form for sectoral output from first principles. Cointegration and common features (cycles) tests are performed and sectoral output data seem to share a relatively high number of common trends and a relatively low number of common cycles. A special trend-cycle decomposition of the data set is performed and the results indicate a very similar cyclical behavior across sectors and a very different behavior for trends. In a variance decomposition exercise, for prominent sectors such as Manufacturing and Wholesale/Retail Trade, the cyclical innovation is more important than the trend innovation.

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Document Object Identifier (DOI): 10.3386/w4529

Published: (Published as "Estimating Common Sectoral Cycles") Journal of Monetary Economics, Vol. 35 (1995): 83-113.

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