Modelling the structural break in volatility
AbstractRecent studies suggest that US and other developed economies have become considerably stabilized in terms of volatility since the mid-1980s (Stock and Watson, 2002). This study models the structural break in volatility using a dynamic factor model with two state variables: one capturing cyclical fluctuations and another reflecting volatility decline. The new model confirms a one-time volatility reduction in the US economy in February 1984. Four-regime models appear to outperform two-regime models.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics Letters.
Volume (Year): 13 (2006)
Issue (Month): 7 ()
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