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Business Cycle Measurement in the Presence of Structural Change: International Evidence

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  • Hans-Martin Krolzig
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    Abstract

    By generalizing Hamiltons model of the US business cycle to a three-regime Markov-switching vector autoregressive model, this paper analyzes regime shifts in the stochastic process of economic growth in the US, Japan and Europe over the last four decades. Empirical evidence is established for the presence of a structural break in the expansionary GDP growth for the US and Japan based on an output-employment MS vector equilibrium correction model, and a structural break in the context of a common European business cycle. For the United States the long expansions of recent years signify basic changes in the business cycles pattern. In the case of Japan we identify long episodes of rapid economic expansions (existing until the mid 1970s) and long economic recessions (as in the 1990s). In Europe we find after an episode of catching-up in the 1970s, convergence in the business cycle pattern which suggests the notion of a European business cycle. The multi-regime Markov-switching VARs proposed are profoundly checked for their economic content and statistical congruency, and are found to provide a sound statistical framework for a comprehensive analysis of the business cycle.

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    File URL: http://www.nuff.ox.ac.uk/economics/papers/2000/w33/ijf.pdf
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    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2000-W33.

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    Date of creation: 01 Nov 2000
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    Handle: RePEc:oxf:wpaper:2000-w33

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    Related research

    Keywords: Business cycles; Regime shifts; Markov switching; Structural change; Employment; Impulse-response analysis; Cointegration; European Union; Time series analysis;

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    1. Phillips, Kerk L., 1991. "A two-country model of stochastic output with changes in regime," Journal of International Economics, Elsevier, vol. 31(1-2), pages 121-142, August.
    2. repec:wop:humbsf:1996-25 is not listed on IDEAS
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    Cited by:
    1. Elias Aravantinos & Fotios Harmantzis, 2005. "A Dynamic Macroeconomic Model for the US Telecommunications Industry," Macroeconomics 0506004, EconWPA.

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