ABSTRACT:
Estimating a robust and stable trend is an important challenge for economic analysis.
In this study we compare alternative approaches by estimating the cyclical component
for the real exchange rate series of Turkey. Comparison criteria is the sensitivity of the
estimated cycle to additional data points. A formal test reveals that cycle values obtained
with all methods change substantially upon new data arrivals. To rank the performance of
the methods, additional measures underlining the comovement of real-time cycles and the
cyclical values with additional data are developed, and the magnitude of end-point bias are
computed. These criteria show that an unobserved components approach, which assumes
trend and cycle innovations are orthogonal, and fixes the share of trend shocks on the real
depreciation rate fluctuations at 10 percent, dominates alternative filtering methods.