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Growth and volatility regime switching models for New Zealand GDP data

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Author Info

  • Robert A Buckle
  • David Haugh
  • Peter Thomson

    ()
    (The Treasury (Buckle, Haugh)
    Statistics Research Associates Ltd (Thomson))

Abstract

This paper fits hidden Markov switching models to New Zealand GDP data. A primary objective is to better understand the utility of these methods for modelling growth and volatility regimes present in the New Zealand data and their interaction. Properties of the models are developed together with a description of the estimation methods, including use of the Expectation Maximisation (EM) algorithm. The models are fitted to New Zealand GDP and production sector growth rates to analyse changes in their mean and volatility over time. The paper discusses applications of the methodology to identifying changes in growth performances, and examines the timing of growth and volatility regime switching between production sectors. Conclusions to emerge are that, in contrast to the 1980s, New Zealand GDP growth experienced an unusually long period of time in high growth and low volatility regimes during the 1990s. The paper evaluates sector contributions to this 1990s experience and discusses directions for further development.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2002/02-08/twp02-08.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 02/08.

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Length: 56 pages
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:nzt:nztwps:02/08

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Related research

Keywords: Hidden Markov models; regime switching; growth; business cycles; volatility; production sectors; GDP.;

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References

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Citations

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Cited by:
  1. Viv Hall & C. John McDermott, 2004. "Regional business cycles in New Zealand: Do they exist? What might drive them?," Working Papers, Motu Economic and Public Policy Research 04_10, Motu Economic and Public Policy Research.
  2. Alejandro R. Pena Sanchez, 2004. "El ciclo económico en Uruguay - Un modelo de Switching Regimes," Econometric Society 2004 Latin American Meetings, Econometric Society 111, Econometric Society.
  3. Ramirez-Rondán Nelson, 2007. "Nonlinear Volatility Effects on Growth in Developing Economies," Working Papers, Banco Central de Reserva del Perú 2007-016, Banco Central de Reserva del Perú.
  4. Iris Claus & Grant Scobie, 2002. "Saving in New Zealand: Measurement and Trends," Treasury Working Paper Series, New Zealand Treasury 02/02, New Zealand Treasury.

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