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Cointegration and Changes in Regime: The Japanese Consumption Function

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Author Info
Hall, Stephen G
Psaradakis, Zacharias
Sola, Martin

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Abstract

In this paper we examine a model of cointegration where long-run parameters are subject to switching between several different cointegrating regimes. These shifts are allowed to be governed by the outcome of an unobserved Markov chain with unknown transition probabilities. We illustrate this approach using Japanese data on consumption and disposable income, and find that the data favor a Markov-switching long-run relationship over a standard temporally stable formulation.

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File URL: http://qed.econ.queensu.ca:80/jae/1997-v12.2/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 12 (1997)
Issue (Month): 2 (March-April)
Pages: 151-68
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Handle: RePEc:jae:japmet:v:12:y:1997:i:2:p:151-68

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  1. Sylvia Kaufmann & Peter Kugler, 2006. "Expected Money Growth, Markov Trends and the Instability of Money Demand in the Euro Area," Working Papers 131, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  2. R. Paap & H.K. van Dijk, 2002. "Bayes estimates of Markov trends in possibly cointegrated series," Econometric Institute Report 295, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
  3. Charles R. Nelson & Jeremy Piger & Eric Zivot, 2000. "Markov regime-switching and unit root tests," International Finance Discussion Papers 683, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  4. Neville Francis & Michael T. Owyang, 2004. "Monetary policy in a Markov-switching VECM: implications for the cost of disinflation and the price puzzle," Working Papers 2003-001, Federal Reserve Bank of St. Louis. [Downloadable!]
  5. R. Paap & H.K. van Dijk, 1999. "Bayes estimates of Markov trends in possibly cointegrated series - an application to US consumption and income," Econometric Institute Report 111, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
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  6. Vasco Gabriel & Pataaree Sangduan, 2009. "Assessing Fiscal Sustainability Subject to Policy Changes: a Markov Switching Cointegration Approach," Department of Economics Discussion Papers 0309, Department of Economics, University of Surrey. [Downloadable!]
  7. fabio spagnolod & Zacharias Psaradakis & Martin Sola, 2003. "Testing the Unbiased Forward Exchange Rate Hypothesis Using a Markov Switching Model and Instrumental Variables," Public Policy Discussion Papers 03-15, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
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  8. Vasco J. Gabriel & Luis F. Martins, 2000. "The Properties of Cointegration Tests in Models with Structural Change," NIPE Working Papers 1/2000, NIPE - Universidade do Minho. [Downloadable!]
  9. Vasco J. Gabriel & Martin Sola & Zacharias Psaradakis, 2002. "Residual-based tests for cointegration and multiple regime shifts," NIPE Working Papers 7/2002, NIPE - Universidade do Minho. [Downloadable!]
  10. Fernando Alexandre & Pedro Bação & Vasco J. Gabriel, 2005. "On the Stablity of the Wealth Effect," NIPE Working Papers 14/2005, NIPE - Universidade do Minho. [Downloadable!]
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  11. Vasco J. Gabriel & Martin Sola & Zacharias Psaradakis, 2001. "A simple method for testing cointegration subject to regime changes," NIPE Working Papers 15/2001, NIPE - Universidade do Minho. [Downloadable!]
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