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MODELING CYCLICAL BEHAVIOR WITH DIFFERENTIAL-DIFFERENCE EQUATIONS IN AN UNOBSERVED COMPONENTS FRAMEWORK

Published online by Cambridge University Press:  16 May 2002

Marcus J. Chambers
Affiliation:
University of Essex
Joanne S. McGarry
Affiliation:
Loughborough University

Abstract

This paper considers a continuous time unobserved components model in which the cyclical component follows a differential-difference equation whereas the trend and seasonal components follow more standard differential equations. Estimation of the parameters of the model with either a stock or a flow variable is analyzed using a frequency domain Gaussian estimator whose asymptotic properties are derived paying particular attention to the role of a truncation parameter that arises in the practical computation of the spectral density function. The results of a simulation exercise, which assesses the finite sample performance of the estimator, are also provided.

Type
Research Article
Copyright
© 2002 Cambridge University Press

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