This paper uses a nonlinear hybrid Kalman/Markov model to estimate trend MFP growth and compares the results from this model with the standard linear Kalman filter approach used elsewhere in the literature. The estimated parameters of the hybrid model suggest strongly that the business cycle is nonlinear, with four out of the last seven NBER recessions too large to fit comfortably into a symmetric linear Kalman framework. This evidence can be read as confirmation that the data for output and hours appear consistent with Friedman's plucking model of the business cycle.
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