Estimating common sectoral cycles

Abstract We investigate in this paper 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 outputs from first principles. Cointegration and common-cycle tests are performed; 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 very different behavior for trends. In a variance decomposition analysis, prominent sectors such as Manufacturing and Wholesale/Retail Trade exhibit relatively important transitory shocks.

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