ABSTRACT
Business cycle analysis is a field of economic time series analysis in which UCM really excel. Very often applied economists use fixed linear filters, such as Hodrick and Prescott (1997), Baxter and King (1999), Christiano and Fitzgerald (2003) to extract the business cycle from a time series. The advantages of UCM with respect to the fixed linear filtering approach are that
• Extracting the business cycle and forecasting is done contemporaneously in a consistent way;
• The extraction of the common business cycle from a pool of time series can be carried out within the same methodology;
• The definition of the business cycle characteristics, such as the mean periodicity/frequency and persistence, can be fixed as in the fixed linear filtering approach or estimated from the data.
