Why are Bayesian trend-cycle decompositions of US real GDP so different?

Abstract

This paper provides an underlying reason for why recent Bayesian trend-cycle decompositions of US real GDP differ despite using identical unobserved components models. We stress that a pitfall in estimating unobserved components models accounts for the divergence in the empirical conclusions. Our results also show that the decline in the long-run growth rate of real GDP has been slow and gradual rather than abrupt during the post-World War II period. © 2018, Springer-Verlag GmbH Germany, part of Springer Nature.