We demonstrate how Bayesian shrinkage can address problems with utilizing large information sets to calculate trend and cycle via a multivariate Beveridge-Nelson (BN) decomposition. We illustrate our approach by estimating the U.S. output gap with large Bayesian vector autoregressions that...

We consider how to estimate the trend and cycle of a time series, such as real GDP, given a large information set. Our approach makes use of the Beveridge-Nelson decomposition based on a vector autoregression, but with two practical considerations. First, we show how to determine which...