Skip to main content Accessibility help


  • James C. Morley (a1)


The Beveridge–Nelson decomposition calculates trend and cycle for an integrated time series. However, there are two ways to interpret the results from the decomposition. One interpretation is that the optimal long-run forecast (minus any deterministic drift) used to calculate the Beveridge–Nelson trend corresponds to an estimate of an unobserved permanent component. The other interpretation is that the optimal long-run forecast defines an observable permanent component. This paper examines some issues surrounding these two interpretations and provides empirical support for interpreting the Beveridge–Nelson trend as an estimate when considering macroeconomic data.


Corresponding author

Address correspondence to: James C. Morley, Department of Economics, Box 1208, Washington University in St. Louis, One Brookings Drive, St. Louis, MO 63130-4899, USA; e-mail:


Hide All
Anderson, Heather M., Low, Chin Nam, and Snyder, Ralph D. (2006) Single source of error state space approach to the Beveridge Nelson decomposition. Economics Letters 91, 104109.
Andrews, Donald W.K. (1993) Tests for parameter instability and structural change with unknown change point. Econometrica 61, 821856.
Andrews, Donald W.K. and Ploberger, Werner (1994) Optimal tests when a nuisance parameter is present only under the alternative. Econometrica 62, 13831414.
Beveridge, Stephen and Nelson, Charles R. (1981) A new approach to the decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle. Journal of Monetary Economics 7, 151174.
Blanchard, Olivier and Quah, Danny (1989) The dynamic effects of aggregate demand and supply disturbances. American Economic Review 79, 655673.
Clarida, Richard H. and Taylor, Mark P. (2003) Nonlinear permanent–temporary decompositions in macroeconomics and finance. Economic Journal 113, C125C139.
Harvey, Andrew C. (1989) Forecasting, Structural Time Series Models and the Kalman Filter. Cambridge, UK: Cambridge University Press.
Harvey, Andrew C. and Koopman, Siem J. (2000) Signal extraction and the formulation of unobserved components models. Econometrics Journal 3, 84107.
Hausman, Jerry (1978) Specification tests in econometrics. Econometrica 46, 12511271.
Maravall, Andrew (1995) Unobserved components in economic time series. In Pesaran, Hashem and Wickens, Michael R. (eds.), Handbook of Applied Econometrics, Vol. 1: Macroeconomics, pp. 1272. Oxford, UK: Blackwell.
Morley, James C. (2002) A state-space approach to calculating the Beveridge–Nelson decomposition. Economics Letters 75, 123127.
Morley, James C., Nelson, Charles R., and Zivot, Eric (2003) Why are the Beveridge–Nelson and unobserved-components decompositions of GDP so different? Review of Economics and Statistics 85, 235243.
Oh, Kum Hwa, Zivot, Eric, and Creal, Drew (2008) The relationship between the Beveridge–Nelson decomposition and other permanent–transitory decompositions that are popular in economics. Journal of Econometrics 146, 207219.
Proietti, Tommaso (1995) The Beveridge–Nelson decomposition: Properties and extensions. Journal of the Italian Statistical Society 4, 101124.
Proietti, Tommaso (2006) Trend–cycle decompositions with correlated components. Econometric Reviews 25, 6184.
Proietti, Tommaso and Harvey, Andrew C. (2000) A Beveridge–Nelson smoother. Economics Letters 67, 139146.
Quah, Danny (1992) The relative importance of permanent and transitory components: Identification and some theoretical bounds. Econometrica 60, 107118.
Watson, Mark W. (1986) Univariate detrending methods with stochastic trends. Journal of Monetary Economics 18, 4975.



  • James C. Morley (a1)


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed