Modelling Business Cycle Nonlinearity in Conditional Mean and Conditional Variance: Some International and Sectoral Evidence
This paper tests for the presence of output mean and variance nonlinearities in international industrial production and U.K. and U.S. sectoral production growth rates using ARMA-GQARCH, bilinear (BL) and joint BL-GQARCH models. ARMA-GQARCH models confirm the presence of asymmetric variance effects in Italian, U.K. and U.S. industrial production and in all sectors other than U.S. nondurables, and such that the conditional variance of output is increased following negative shocks. BL models are identified for German, Italian and U.S. industrial production and U.S. manufacturing, while BL-GQARCH models of joint nonlinearity in both conditional mean and conditional variance are also found to hold for U.S. industrial production and manufacturing. Moreover, with the exception of Italy, all BL and BL-QARCH models provide superior out-of-sample mean forecasts relative to forecasts from both naive models and models of the ARMA-GQARCH class. Copyright 1998 by The London School of Economics and Political Science
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Volume (Year): 65 (1998)
Issue (Month): 258 (May)
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