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Modeling Nonlinearity of Business Cycles: Choosing Between the CDR and STAR Models

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  • Dennis W. Jansen
  • Wankeun Oh

Abstract

Nonlinear modeling has become popular in applied macroeconomics. Successful attempts include Beaudry and Koop's CDR (current depth of the recession) model of real GNP, and various STAR (smooth transition autoregression) models of industrial production. However, these models have not been directly compared. We compare CDR and STAR models of U.S. real GNP and industrial production. We find (i) within sample, the CDR model fits slightly better than the STAR model; (ii) out of sample, the CDR model forecasts better than the STAR model; and (iii) the CDR model generates very different dynamics than the STAR model. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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  • Dennis W. Jansen & Wankeun Oh, 1999. "Modeling Nonlinearity of Business Cycles: Choosing Between the CDR and STAR Models," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 344-349, May.
    • Handle: RePEc:tpr:restat:v:81:y:1999:i:2:p:344-349
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    Cited by:

    1. Ólan T. Henry & Nilss Olekalns, 2002. "The Effect of Recessions on the Relationship between Output Variability and Growth," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 683-692, January.
    2. Koop, Gary & Potter, Simon M, 2003. "Bayesian Analysis of Endogenous Delay Threshold Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 93-103, January.
    3. Yeyati, Eduardo Levy & Panizza, Ugo, 2011. "The elusive costs of sovereign defaults," Journal of Development Economics, Elsevier, vol. 94(1), pages 95-105, January.
    4. Levy Yeyati, Eduardo, 2008. "The cost of reserves," Economics Letters, Elsevier, vol. 100(1), pages 39-42, July.
    5. George Athanasopoulos & Heather M. Anderson & Farshid Vahid, 2007. "Nonlinear autoregressive leading indicator models of output in G-7 countries," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 63-87.
    6. Bradley, Michael D. & Jansen, Dennis W., 2004. "Forecasting with a nonlinear dynamic model of stock returns and industrial production," International Journal of Forecasting, Elsevier, vol. 20(2), pages 321-342.

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