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Beveridge-Nelson Decomposition with Markov Switching

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  • Chin Nam Low

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Heather Anderson

    (Australia National University)

  • Ralph Snyder

    (Monash University)

Abstract

In this paper, we consider the introduction of Markov-switching (MS) processes to both the permanent and transitory components of the Beveridge-Nelson (BN) decomposition. This new class of MS models within the context of BN decomposition provides an alternative framework in the study of business cycle asymmetry. Our approach incorporates Markov switching into a BN decomposition formulated in a single source of error state-space form, allowing regime switches in the long-run multiplier as well as in the short-run parameters.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2006n14.

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Length: 22 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:iae:iaewps:wp2006n14

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  1. Chen, Chao-Chun & Tsay, Wen-Jen, 2006. "The Beveridge-Nelson decomposition of Markov-switching processes," Economics Letters, Elsevier, vol. 91(1), pages 83-89, April.
  2. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
  3. James C. Morley & Charles Nelson & Eric Zivot, 2000. "Why Are Beveridge-Nelson and Unobserved-Component Decompositions of GDP So Different?," Discussion Papers in Economics at the University of Washington 0013, Department of Economics at the University of Washington.
  4. Shami, R.G. & Forbes, C.S., 2000. "A structural Time Series Model with Markov Switching," Monash Econometrics and Business Statistics Working Papers 10/00, Monash University, Department of Econometrics and Business Statistics.
  5. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
  6. Margaret M. McConnell & Gabriel Perez Quiros, 1997. "Output fluctuations in the United States: what has changed since the early 1980s?," Research Paper 9735, Federal Reserve Bank of New York.
  7. Chang-Jin Kim & Jeremy M. Piger & Richard Startz, 2007. "The Dynamic Relationship between Permanent and Transitory Components of U.S. Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 187-204, 02.
  8. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  9. Robert Breunig & Serinah Najarian & Adrian Pagan, 2003. "Specification Testing of Markov Switching Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 703-725, December.
  10. Sichel, Daniel E, 1994. "Inventories and the Three Phases of the Business Cycle," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 269-77, July.
  11. Goldfeld, Stephen M. & Quandt, Richard E., 1973. "A Markov model for switching regressions," Journal of Econometrics, Elsevier, vol. 1(1), pages 3-15, March.
  12. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, December.
  13. Simon M. Potter, 1993. "A Nonlinear Approach to U.S. GNP," UCLA Economics Working Papers 693, UCLA Department of Economics.
  14. Luginbuhl, Rob & de Vos, Aart, 1999. "Bayesian Analysis of an Unobserved-Component Time Series Model of GDP with Markov-Switching and Time-Varying Growths," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 456-65, October.
  15. Chin Nam Low & Heather Anderson & Ralph Snyder, 2004. "Single Source of Error State Space Approach to the Beveridge Nelson Decomposition," Econometric Society 2004 Australasian Meetings 242, Econometric Society.
  16. Andrew Harvey & Siem Jan Koopman, 2000. "Signal extraction and the formulation of unobserved components models," Econometrics Journal, Royal Economic Society, vol. 3(1), pages 84-107.
  17. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  18. Mankiw, N. Gregory & Campbell, John, 1987. "Permanent and Transitory Components in Macroeconomic Fluctuations," Scholarly Articles 3207697, Harvard University Department of Economics.
  19. Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, vol. 27(2), pages 163-183.
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Cited by:
  1. Willie Lahari, 2011. "Assessing Business Cycle Synchronisation - Prospects for a Pacific Islands Currency Union," Working Papers 1110, University of Otago, Department of Economics, revised Oct 2011.
  2. Kim, Chang-Jin, 2008. "Markov-switching and the Beveridge-Nelson decomposition: Has US output persistence changed since 1984?," Journal of Econometrics, Elsevier, vol. 146(2), pages 227-240, October.

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