Analysing the permanent and cyclical components of GDP of the euro-area countries in a global context : the role of cross-sectional dependence : 2016 edition

This paper focus on an analysis of the GVAR model across euro-area countries when detrending. The GVAR model accommodates cross-country as well as cross-variable dependencies among the euro-area countries. We focus on the role of cross-sectional dependence in the production of trend and cycle estimates of the Euro-area countries by comparing the GVAR trend and cyclical components extracted for individual countries with the estimates produced using a restricted GVAR in which cross-sectional dependencies are set to zero. By implementing an analysis in real-time and across countries, we see how accommodating dependencies across countries in the detrending model performs compared to models restricting such dependencies to zero; and we see how changing levels of cross-country dependence affect real-time trend-cycle estimates.