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A Duration-Dependent Regime Switching Model for an Open Emerging Economy

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Author Info

  • Ozun, Alper

    () (Bradford University, School of Management, UK, Bank of Turkey and Treasury Department, Istanbul, Turkey)

  • Turk, Mehmet

    () (Bank of Turkey, Treasury Department, Istanbul)

Abstract

We employ duration-dependent Markov-switching vector auto-regression (DDMSVAR) methodology to construct an economic cycle model for an emerging economy. By modifying the software codes for DDMSVAR methodology written by Pelagatti (2003), we show how to estimate the economic cycles in an emerging economy where macroeconomic shocks are suddenly observed and their levels are deep. The monthly values of net international reserves, domestic debt, inflation and industrial production in the Turkish economy from January 1989 to July 2007 are used for constructing the empirical analysis. Empirical evidence shows that DDMSVAR model can be successfully used in an emerging economy to estimate the cycles using basic macroeconomic indicators.

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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2009)
Issue (Month): 4 (December)
Pages: 66-81

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Handle: RePEc:rjr:romjef:v::y:2009:i:4:p:66-81

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Related research

Keywords: duration dependent regime switching model; economic cycles; Markov models; Turkish economy;

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Cited by:
  1. Vitor Castro, 2011. "The Portuguese Business Cycle: Chronology and Duration Dependence," GEMF Working Papers 2011-07, GEMF - Faculdade de Economia, Universidade de Coimbra.
  2. Vitor Castro, 2011. "The Portuguese Stock Market Cycle: Chronology and Duration Dependence," GEMF Working Papers 2011-17, GEMF - Faculdade de Economia, Universidade de Coimbra.

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