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Published online by Cambridge University Press:  13 June 2014

Mardi Dungey
University of Tasmania, CFAP, University of Cambridge and CAMA
Jan P.A.M. Jacobs
University of Groningen, University of Tasmania CAMA and CIRANO
Jing Tian
University of Tasmania
Simon van Norden*
Address correpondence to: Simon van Norden, HEC Montréal, 3000 Chemin de la Cote Sainte Catherine, Montreal, QC H3T 2A7, Canada; e-mail:


A well-documented property of the Beveridge–Nelson trend–cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where permanent innovations enter the cycle or transitory innovations enter the trend, and that identification restrictions are necessary to make this structural distinction. A reduced-form unrestricted version is compatible with either option, but cannot distinguish which is relevant. We discuss economic interpretations and implications using U.S. real GDP data.

Copyright © Cambridge University Press 2014 

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