Trend Growth Durations & Shifts

SRC Discussion Paper No 71

63 Pages Posted: 4 Nov 2016 Last revised: 8 Jul 2017

Date Written: July 2017

Abstract

Policymakers and investors often conceptualize trend growth as simply a medium/long term average growth rate. In practice, these averages are usually taken over arbitrary periods of time, thereby ignoring the large empirical growth literature which shows that doing so is inappropriate, especially in developing countries where growth is highly unstable. This paper builds on this literature to propose an algorithm, called “iterative Fit and Filter” (iFF), that extracts the trend as a sequence of medium/long term growth averages. iFF separates important country-specific historical episodes and trend growth durations - number of years between two consecutive trend growth shifts, vary substantially across countries and over time. We relate the conditional probabilities of up and down-shifts in trend growth next year to the country's current growth environment, level of development, demographics, institutions, economic management and external shocks, and show how both iFF and the predictive model could be applied in practice.

Keywords: Economic Growth, Duration Analysis, Trend Shifts, Trend extraction

JEL Classification: O11, O47

Suggested Citation

Grinis, Inna, Trend Growth Durations & Shifts (July 2017). SRC Discussion Paper No 71, Available at SSRN: https://ssrn.com/abstract=2864194 or http://dx.doi.org/10.2139/ssrn.2864194

Inna Grinis (Contact Author)

RavenPack International ( email )

Centro de Negocios Oasis, Of. 8
Ctra. de Cadiz Km 176
Marbella, Malaga 29602
Spain

HOME PAGE: http://ravenpack.com

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