This note provides explanations for an unexpected result, namely, the estimated parameter of the correlation coefficient of the trend shock and cycle shock in the state–space model is almost always (positive or negative) unity, even when the true variance of the trend shock is zero. It is...

Theoretical explanations for price stickiness used in businesses cycle models are diverse (e.g., information processing delays, rational inattention and fair pricing), with each theory resulting in a different implication for inflation dynamics. Using an autoregressive conditional binomial...