Single source of error state space approach to the Beveridge Nelson decomposition

Vol: 
11/2005
Author name: 
Anderson HM
Low CN
Snyder R
Year: 
2005
Month: 
May
Abstract: 

A well known property of the Beveridge Nelson decomposition is that the innovations in the permanent and transitory components are perfectly correlated. We use a single source of error state space model to exploit this property and perform a Beveridge Nelson decomposition. The single source of error state space approach to the decomposition is computationally simple and it incorporates the direct estimation of the long-run multiplier.

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