Working Paper

GDP Trend-cycle Decompositions Using State-level Data

Abstract: This paper develops a method for decomposing GDP into trend and cycle exploiting the cross-sectional variation of state-level real GDP and unemployment rate data. The model assumes that there are common output and unemployment rate trend and cycle components, and that each state?s output and unemployment rate are subject to idiosyncratic trend and cycle perturbations. The model is estimated with Bayesian methods using quarterly data from 2005:Q1 to 2016:Q1 for the 50 states and the District of Columbia. Results show that the U.S. output gap reached about -8% during the Great Recession and is about 0.6% in 2016:Q1.

Keywords: unobserved component model; State-level GDP data; Trend-cycle decomposition;

JEL Classification: C13; C32; C52;

https://doi.org/10.17016/FEDS.2017.051

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-05

Number: 2017-051

Pages: 34 pages