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Time series non-linearity in the real growth / recession-term spread relationship

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  • Dalu Zhang

    (University of East Anglia)

  • Peter Moffatt

    (University of East Anglia)

Abstract

This paper examines the existence of time series non-linearity in the real output growth / recession-term spread relationship. Vector Autoregression (VAR), Threshold VAR (TVAR), Structural break VAR (SBVAR), Structural break threshold VAR (SBTVAR) are applied in the analysis. The in-sample results indicate there are non-linear components in this relationship. And this non-linearity tend to be caused by structural breaks. The best in-sample model also shows its robustness on arrival of new information in the out-of-sample tests. We find evidence the model with only structural break non-linearity outperform linear models in 1-quarter, 3-quarter and 4-quarter ahead forecasting.

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Bibliographic Info

Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Applied and Financial Economics Working Paper Series with number 047.

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Date of creation: Jun 2013
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Handle: RePEc:uea:aepppr:2012_47

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