Analysis of the US business cycle with a Vector-Markov-switching model

Analysis of the US business cycle with a Vector-Markov-switching model

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Article ID: iaor20021491
Country: United Kingdom
Volume: 20
Issue: 1
Start Page Number: 47
End Page Number: 61
Publication Date: Jan 2001
Journal: International Journal of Forecasting
Authors:
Keywords: markov processes, economics
Abstract:

This paper identifies turning points for the US ‘business cycle’ using information from different time series. The model, a multivariate Markov-switching model, assumes that each series is characterized by a mixture of two normal distributions (a high and low mean) with the switching from one to the other determined by a common Markov process. The procedure is applied to the series composing the composite coincident indicator in the USA to obtain business cycle turning points. The business cycle chronology is closer to the NBER reference cycle than the turning points obtained from the individual series using a univariate model. The model is also used to forecast the series with some encouraging results.

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