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Identification of business cycles and the Great Moderation in the post-war U.S. economy

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  • Jiang, Yu

Abstract

In this paper, a 4-state Markov-switching model based on a Bayesian framework is applied to study the post-war U.S. economy, where the 4 states are designed to represent the expansions and contractions in the non-Great Moderation period and in the Great Moderation period. We propose a simple yet efficient method to deal with the label switching problem in the MCMC simulation. Our model successfully identifies the business cycles and the Great Moderation in the post-war U.S. economy at the same time. Furthermore, our model performs better in the state identification than models based on traditional methods do.

Suggested Citation

  • Jiang, Yu, 2020. "Identification of business cycles and the Great Moderation in the post-war U.S. economy," Economics Letters, Elsevier, vol. 190(C).
    • Handle: RePEc:eee:ecolet:v:190:y:2020:i:c:s0165176520300732
    DOI: 10.1016/j.econlet.2020.109072
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    References listed on IDEAS

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    More about this item

    Keywords

    Bayesian; Business cycles; Great Moderation; Label switching; Identification of states; Markov-switching model;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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