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Applying shape and phase restrictions in generalized dynamic categorical models of the business cycle

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  • Don Harding

    ()
    (LaTrobe)

Abstract

To match the NBER business cycle features it is necessary to employ Generalised dynamic categorical (GDC) models that impose certain phase restrictions and permit multiple indexes. Theory suggests additional shape restrictions in the form of monotonicity and boundedness of certain transition probabilities. Maximum likelihood and constraint weighted bootstrap estimators are developed to impose these restrictions. In the application these estimators generate improved estimates of how the probability of recession varies with the yield spread.

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File URL: http://www.ncer.edu.au/papers/documents/WPNo58.pdf
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Bibliographic Info

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 58.

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Length: 33 pages
Date of creation: 28 Jul 2010
Date of revision:
Handle: RePEc:qut:auncer:2010_05

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Keywords: Generalized dynamic categorical model; Business cycle; binary variable; Markov process; probit model; yield curve;

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  1. Jeffrey Racine, 2008. "Nonparametric econometrics: a primer (in Russian)," Quantile, Quantile, issue 4, pages 7-56, March.
  2. Racine, Jeffrey S., 2008. "Nonparametric Econometrics: A Primer," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(1), pages 1-88, March.
  3. Henderson, Daniel J. & Parmeter, Christopher F., 2009. "Imposing Economic Constraints in Nonparametric Regression: Survey, Implementation and Extension," IZA Discussion Papers 4103, Institute for the Study of Labor (IZA).
  4. Don Harding & Adrian Pagan, 2009. "An Econometric Analysis Of Some Models For Constructed Binary Time Series," CAMA Working Papers 2009-08, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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Cited by:
  1. Monica Billio & Roberto Casarin & Francesco Ravazzolo & Herman K. van Dijk, 2013. "Interactions between eurozone and US booms and busts: A Bayesian panel Markov-switching VAR model," Working Paper 2013/20, Norges Bank.

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