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A permanent-transitory decomposition for ARFIMA processes

✍ Scribed by Miguel A. Ariño; Francesc Marmol

Book ID
104339923
Publisher
Elsevier Science
Year
2004
Tongue
English
Weight
291 KB
Volume
124
Category
Article
ISSN
0378-3758

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✦ Synopsis

The purpose of this paper is to present a decomposition into a trend or permanent component and a cycle or transitory component of a time series that follows a nonstationary (d ¿ 1

2 ) autoregressive fractionally integrated moving average ARFIMA(p; d; q) model. The decomposition depends only on past data and is thus computable in real time. We also provide an algorithm for the e cient and exact computation of the decomposition. The empirical applicability of our decomposition is illustrated with a study of German unemployment rate series.

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This paper proposes a systematic framework for analyzing the dynamic e!ects of permanent and transitory shocks on a system of n economic variables. We consider a two-step orthogonolization on the residuals of a VECM with r cointegrating vectors. The "rst step separates the permanent from the transit