Estimating common sectoral cycles

Engle, Robert F.; Issler, João Victor

doi:10.1016/0304-3932(94)01188-g

Cited by 90 publications

(89 citation statements)

References 22 publications

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“…5 Other applications of common cycles and common trends methodology in business cycles (national, local and sectoral), macroeconomic variables, health expenditures, metals and commodities can be found in the papers, such as: Vahid and Engle (1993), Engle and Issler (1995), Issler and Vahid (2001), Narayan (2008), Narayan and Narayan (2008a, b), and Issler et al, (2014). 6 Common trends and cycles can also be introduced into the multivariate structural time series model of Harvey (1989) and Koopman et al (2000).…”

Section: Introductionmentioning

confidence: 99%

Common cycles and common trends in the stock and oil markets: Evidence from more than 150 years of data

2017

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This paper investigates the role of permanent and transitory shocks, within the framework of common cycles and common trends, in explaining stock and oil prices. We perform a multivariate variance decomposition analysis of monthly data on the West Texas Intermediate (WTI) oil price and the S&P500. The dataset used in the study spans a long period of 150 years and therefore contains a rich history to examine both the short-and longrun comovement properties of oil and stock prices. Given that the oil and stock markets might comove both in the short-and long-run, it is of interest to see the relative impacts of transitory and permanent shocks on both variables. We find that (log) oil price and (log) S&P 500 share a common stochastic trend for our full sample of September 1859 to July 2015, but a common cycle only exists during the post-WW II period. Full and post-WW II samples have quite different common feature estimates in terms of the impact of permanent and transitory shocks as measured by the impulse responses and forecast error variance decompositions. We also find that in the short-run oil is driven mostly by cycles (transitory shocks) and stock market is mostly driven by permanent shocks. But, permanent shocks dominate in the long-run.1

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Section: Introductionmentioning

confidence: 99%

Common cycles and common trends in the stock and oil markets: Evidence from more than 150 years of data

2017

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“…Permanent shocks are now found to explain the majority of the variance of all the sectors' output innovations, increasingly so for longer horizons. Engle and Issler (1995) also find common trends and cycles to be present for the US, highlighting broad consistency across the two economies. In terms of patterns of trend and cyclical behaviour, and the importance of permanent and transitory shocks, however, the similarities between the two countries are mixed, with parallels for some sectors and time periods, and not others.…”

Section: Resultsmentioning

confidence: 67%

Corrigendum to ‘‘Common features in UK sectoral outputʼʼ[Economic Modelling 19 (2002) 91-104]

Harvey

Mills

2005

Economic Modelling

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“…At forecast horizon j, j consecutive first differences of the common trend are summed to obtain the j-step-ahead trend innovation. Innovations to the cyclical component are the residuals of the cyclical component regressed on the information set of our VECM(3) lagged appropriately (the information set lagged j times); see Engle and Issler (1995) and Issler and Vahid (2001) for details.…”

Section: Resultsmentioning

confidence: 99%

“…There also is a F ¡test due to Rao (1973) that has superior small sample properties, according to Engle and Issler (1995). We calculate squared canonical correlations of 0.0513 and 0.8243.…”

Section: Nkpc Common Cycle Prediction: Estimates and Testsmentioning

confidence: 99%

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Along the New Keynesian Phillips Curve with Nominal and Real Rigidities

Nason

Slotsve

2004

SSRN Journal

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We construct a New Keynesian Phillips curve (NKPC) in which the inflation fundamental is nominal unit labor costs. This NKPC yields estimates of the fraction of price constrained firms consistent with previous studies. Although the NKPC predicts permanent shocks dominate price level movements at all horizons, our estimated NKPC explains over half of price level fluctuations with permanent shocks only at a three year horizon. We develop monetary business cycle models which contain different combinations of nominal and real rigidities to study this puzzle. Monte Carlo experiments indicate labor market search together with flexible prices replicate the empirical NKPC predictions. Models with sticky-prices are at odds with these observations. Thus, real rigidities in the labor market matter more for economically important monetary non-neutralities than do sticky prices.

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Estimating common sectoral cycles

Cited by 90 publications

References 22 publications

Common cycles and common trends in the stock and oil markets: Evidence from more than 150 years of data

Common cycles and common trends in the stock and oil markets: Evidence from more than 150 years of data

Corrigendum to ‘‘Common features in UK sectoral outputʼʼ[Economic Modelling 19 (2002) 91-104]

Along the New Keynesian Phillips Curve with Nominal and Real Rigidities

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