Title: The Role of Trends and Detrending in DSGE Models
Abstract: The paper discusses the role of stochastic trends in DSGE models and effects of stochastic
detrending. We argue that explicit structural assumptions on trend behavior is convenient,
namely for emerging countries. In emerging countries permanent shocks are an important
part of business cycle dynamics. The reason is that permanent shocks spill over
the whole frequency range, potentially, including business cycle frequencies. Applying
high- or band-pass filter to obtain business cycle dynamics, however, does not eliminate
the influence of permanent shocks on comovements of time series. The contribution of
the paper is to provide a way how to calculate the role of permanent shocks on the detrended/
filtered business cycle population dynamics in a DSGE model laboratory using
the frequency domain methods.
Publication Year: 2008
Publication Date: 2008-08-01
Language: en
Type: article
Access and Citation
Cited By Count: 7
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot