Additive versus multiplicative seasonal adjustment when there are fast changes in the trend-cycle

The seasonal adjustment of a time series is not a straightforward procedure particularly when the level of a series nearly doubles in just one year. The 1981-82 recession had a very sudden great impact not only on the structure of the series but on the estimation of the trend- cycle and seasonal components at the end of the series. Serious seasonal adjustment problems can occur. For instance: the selection of the wrong decomposition model may produce underadjustment in the seasonally high months and overadjustment in the seasonally low months. The wrong decomposition model may also signal a false turning point. This article analyses these two aspects of the interplay between a severe recession and seasonal adjustment.