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Business cycle asymmetries in Turkey: an application of Markov-switching autoregressions

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  • Huseyin Tastan
  • Nuri Yildirim

Abstract

This paper examines business cycle characteristics of the Turkish economy in the liberalization (post-1980) period using a Markov-switching Autoregressive (MSAR) model framework. The importance of the model selection process is emphasized in an extensive search for the appropriate MS model. The business cycle properties are found to be very sensitive to the state dimension, the choice of the MS model (classified according to regime-dependent parameters) and the autoregressive lag order. The chosen two-regime MS model suggests four recessionary and five expansionary phases in the post-1980 period. Business cycle phases are found to be asymmetric with the probability of switching from a recession to expansion exceeding the probability of switching from expansion to recession. The paper also provides evidence on the usefulness of a non-linear model as compared with a linear alternative in the context of business cycle research in an emerging economy using various parametric and non-parametric tests. Non-linear and linear models are compared and evaluated using kernel density and conditional expectation estimates by simulating data from respective models.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 22 (2008)
Issue (Month): 3 ()
Pages: 315-333

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Handle: RePEc:taf:intecj:v:22:y:2008:i:3:p:315-333

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Related research

Keywords: Markov switching AR model; business cycle; asymmetry tests; emerging economy; Turkey;

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Cited by:
  1. Sumru Altug & Melike Bildirici, 2010. "Business Cycles around the Globe: A Regime Switching Approach," Koç University-TUSIAD Economic Research Forum Working Papers 1009, Koc University-TUSIAD Economic Research Forum.
  2. Taştan, Hüseyin, 2011. "Simulation based estimation of threshold moving average models with contemporaneous shock asymmetry," MPRA Paper 34302, University Library of Munich, Germany.
  3. Nuri Yildirim & Huseyin Tastan, 2012. "Capital Flows and Economic Growth across Spectral requencies: Evidence from Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 441-462, September.
  4. Wasim, Ahmad & Bandi, Kamaiah, 2011. "Identifying regime shifts in Indian stock market: A Markov switching approach," MPRA Paper 37174, University Library of Munich, Germany, revised 08 Mar 2012.
  5. Erden, Lutfi & Ozkan, Ibrahim, 2014. "Determinants of international transmission of business cycles to Turkish economy," Economic Modelling, Elsevier, vol. 36(C), pages 383-390.
  6. Huseyin Kaya, 2013. "On the Predictive Power of Yield Spread for Future Growth and Recession: The Turkish Case," Working Papers 010, Bahcesehir University, Betam, revised Mar 2013.

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