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Colombian economic growth under Markov switching regimes with endogenous transition probabilities

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  • Martha Misas

    ()

  • María Teresa Ramírez

    ()

Abstract

In this paper, we modelled the Colombian long run per capita economic growth (1925- 2005) using a Markov switching regime model with both fixed (FTP) and time-varying transition probabilities (TVTP) to explain regime changes in the economic growth. We found evidence of non-linearity in the per capita economic growth, and two different levels in the data associated with depression and sustainable growth regimes were identified. In addition, the hypothesis of fixed probabilities is rejected in favour of the time-varying transitional probabilities, meaning that the correct model is the one with endogenous probabilities, when the probability of remaining in the sustainable growth regime increases with a rise in terms of trade, government expenditures and decreases with capital outflows. On the other hand, increases in government expenditures and terms of trade decrease the probability of being in the depression state while an increase in capital outflows raises such probability. Finally, we found that TVTP model gives more information than FTP model because the probabilities have changed significantly during the period under analysis and the explanatory variables are very informative in dating the evolution of the state of the economy, especially those associated with external shocks.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 002148.

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Length: 23
Date of creation: 20 Dec 2006
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Handle: RePEc:col:000094:002148

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Keywords: Markov endogenous switching regime model; Time-varying transition probabilities; economic growth; Colombia.;

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  1. Martha Misas & María Teresa Ramírez, 2005. "Depressions In The Colombian Economic Growth During The Xx Century:A Markov Switching Regime Model," BORRADORES DE ECONOMIA 002274, BANCO DE LA REPÚBLICA.
  2. Andrew J. Filardo & Stephen F. Gordon, 1993. "Business cycle durations," Research Working Paper, Federal Reserve Bank of Kansas City 93-11, Federal Reserve Bank of Kansas City.
  3. Luca Stanca, 1999. "Asymmetries and nonlinearities in Italian macroeconomic fluctuations," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 31(4), pages 483-491.
  4. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
  5. Carlos Esteban Posada P., 1999. "Los Ciclos Económicos En El Siglo Xx," BORRADORES DE ECONOMIA 003158, BANCO DE LA REPÚBLICA.
  6. Pok-sang Lam, 2004. "A Markov-Switching Model Of Gnp Growth With Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 175-204, 02.
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