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The variance of economic activity over the business cycle: some further evidence

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  • D. A. Peel
  • A. E. H. Speight

Abstract

This letter tests for the presence of non-linearities in UK and US industrial and sectoral production growth rates using a joint model of bilinearity inconditional mean and generalized-autoregressive-conditional heteroscedasticity, the latter augmented by lagged production growth rates so as to allow consideration of variance asymmetry with respect to the phase of the business cycle. We find bilinearity inconditional mean to be present in US industrial production and manufacturing, and significant conditional variance asymmetries in the majority of series considered such that conditional variance is higher during recessions and stronger in the more cyclically sensitive durable consumer goods sectors.

Suggested Citation

  • D. A. Peel & A. E. H. Speight, 1998. "The variance of economic activity over the business cycle: some further evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 5(11), pages 669-673.
    • Handle: RePEc:taf:apeclt:v:5:y:1998:i:11:p:669-673
    DOI: 10.1080/135048598354096
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    References listed on IDEAS

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    1. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
    2. French, Mark W & Sichel, Daniel E, 1993. "Cyclical Patterns in the Variance of Economic Activity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 113-119, January.
    3. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    4. Pham, Dinh Tuan, 1985. "Bilinear markovian representation and bilinear models," Stochastic Processes and their Applications, Elsevier, vol. 20(2), pages 295-306, September.
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