Univariate detrending methods with stochastic trends

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This paper discusses detrending economic time series, when the trend is modelled as a stochastic process. It considers unobserved components models in which the observed series is decomposed into a trend (a random walk with drift) and a residual stationary component. Optimal detrending methods are discussed, as well as problems associated with using these detrended data in regression models. The methods are applied to three time series: GNP, disposable income, and consumption expenditures. The detrended data are used to test a version of the Life Cycle consumption model.

Original languageEnglish (US)
Pages (from-to)49-75
Number of pages27
JournalJournal of Monetary Economics
Issue number1
StatePublished - Jul 1986
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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