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The performance of the Markov-switching model on business cycle identification revisited

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  • Ming-Yuan Leon Li
  • Hsiou-Wei William Lin
  • Rau Hsiu-hua

Abstract

This study examines the performance of Markov-switching model on business cycle by applying the model to various economies. Specifically, three comparison groups are used: (1) the USA and Japan serving as the representatives for the industrialized economies (or IEs hereafter); (2) Taiwan and South Korea serving as the representatives for newly industrialized economies (or NIEs hereafter); and (3) Malaysia and Indonesia serving as the representatives for the developing economies (or DEs hereafter). The empirical results are consistent with the following notions. First, the Markov-switching model serves well to depict the business cycles for IEs and DEs. Nevertheless, the model is ineffective for the two NIEs, which underwent structural economic shifts to slower growth during our sample period of 1970-1998. Second, the two-period Markov-switching by dividing the sample periods into two sub-periods thus more effectively measures the two NIEs' business cycles.

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File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/13504850500119963&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 8 ()
Pages: 513-520

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:8:p:513-520

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  1. Luca Stanca, 1999. "Asymmetries and nonlinearities in Italian macroeconomic fluctuations," Applied Economics, Taylor & Francis Journals, vol. 31(4), pages 483-491.
  2. Krolzig, Hans-Martin, 2001. "Business cycle measurement in the presence of structural change: international evidence," International Journal of Forecasting, Elsevier, vol. 17(3), pages 349-368.
  3. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
  4. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
  5. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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Cited by:
  1. Gary A. Wagner & Erick Elder, 2007. "How well are the states of the Eighth Federal Reserve District prepared for the next recession?," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Nov, pages 75-87.

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