 Economic stability

Real macroeconomic output can be decomposed into a trend and a cyclical part, where the variance of the cyclical series derived from the filtering technique (e.g., the band-pass filter, or the most commonly used Hodrick–Prescott filter) serves as the primary measure of departure from economic stability.A simple method of decomposition involves regressing real output on the variable “time”, or on a polynomial in the time variable, and labeling the predicted levels of output as the trend and the residuals as the cyclical portion.