Identifying Canadian Regional Business Cycles using the Friedmand Plucking Model

Following the methodology used by Kim and Nelson (1999b), I find estimates of the permanent and transitory components for Canadian regions based on the Friedman model of business fluctuations. The empirical results support the theoretical predictions that negative transitory shocks hit the economy putting down the real regional output. After that, the regional economy enters in a recovery phase and after this it is operating again near to the trend ceiling level. Using the estimated filtered probabilities, a chronology of the regional business cycles is presented. It shows that there are clear and particular episodes corresponding to the regional dynamics which are not necessarily present at the aggregate level.