We develop a model of GDP growth under which regime changes are triggered stochastically by an observable tension index, constructed as the geometric sum of deviations of actual GDP growth from a corresponding sustainable rate. Within expansionary regimes, the tension index tends to increase, which heightens the probability of a regime change. Given a regime change, the process becomes reversed, and the tension index begins to decline along a newly established path. Linking the behavior of the tension index to GDP growth enables us to capture floor and ceiling effects. Copyright (c) 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 87 (2005) Issue (Month): 4 (December) Pages: 697-708 Download reference. The following formats are available: HTML
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