End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey

End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey

Title : End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey
Number : 13/16
Author(s) : Fatih Ekinci, Gazi Kabaş, Enes Sunel
Language : English
Date : March 2013
Abstract : Estimating a robust and stable trend is an important challenge for economic analysis. In this study we compare alternative approaches by estimating the cyclical component for the real exchange rate series of Turkey. Comparison criteria is the sensitivity of the estimated cycle to additional data points. A formal test reveals that cycle values obtained with all methods change substantially upon new data arrivals. To rank the performance of the methods, additional measures underlining the comovement of real-time cycles and the cyclical values with additional data are developed, and the magnitude of end-point bias are computed. These criteria show that an unobserved components approach, which assumes trend and cycle innovations are orthogonal, and fixes the share of trend shocks on the real depreciation rate fluctuations at 10 percent, dominates alternative filtering methods.
Keywords : Trend-cycle decompositions, Real exchange rate, Stochastic trend
JEL Codes : C22; E37; F31

 

End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey
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