Staff Reports
Sparse Trend Estimation
Number 1049
February 2023 March 2024

JEL classification: C3, C30, C33, E27, E32

Authors: Richard K. Crump, Nikolay Gospodinov, and Hunter Wieman

The low-frequency movements of economic variables play a prominent role in policy analysis and decision-making. We develop a robust estimation approach for these slow-moving trend processes that is guided by a judicious choice of priors and characterized by sparsity. We present novel stylized facts from longer-run survey expectations that inform the structure of the estimation procedure. The general version of the proposed Bayesian estimator with a spike-and-slab prior accounts explicitly for cyclical dynamics. We show that it performs well in simulations against relevant benchmarks and report empirical estimates of trend growth for U.S. output and annual mean temperature.

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Author Disclosure Statement(s)
Richard K. Crump
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Sparse Trend Estimation,” joint with Nikolay Gospodinov and Hunter Wieman. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Nikolay Gospodinov
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Sparse Trend Estimation,” joint with Richard Crump and Hunter Wieman. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Hunter Wieman
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Sparse Trend Estimation,” joint with Richard Crump and Nikolay Gospodinov. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
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