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Markov-Switching Procedures for Dating the Euro-Zone Business Cycle

Listed author(s):
  • Hans-Martin Krolzig

This paper addresses the issues of identification and dating of the Euro-zone business cycle by using the Markov-switching approach innovated by Hamilton in his analysis of the US business cycle. Regime shifts in the stochastic process of economic growth in the Euro-zone are identified by fitting Markov-switching models to aggregated and single-country Euro-zone real GDP growth data of the last two decades. The models are found to be statistically congruent and economically meaningful. Based of the smoothed regime probabilities from the Markov-switching models the Euro-zone business cycle is dated and recessions from 1980Q1 to 1981Q1 and 1992Q3 to 1993Q2 are revealed. A Markov-switching vector autoregression of real GDP growth rates in eight EMU member states shows that while the business cycles in the Euro-zone have not been perfectly synchronized over the last two decades, the overall evidence for the presence of a common Euro-zone cycle is strong. Zur Identifikation und Datierung des Konjunkturzyklus in der Eurozone wird der von Hamilton zur Analyse des US-Konjunkturzyklus vorgeschlagene Markov-Regimewechselansatz auf vierteljährliche aggregierte und länderspezifische Zeitreihen des realen Bruttoinlandsproduktwachstums der zwei letzten Jahrzehnte angewandt. Mit den statistisch kongruenten und ökonomisch sinnvollen Modellen werden Regimewechsel im stochastischen Wachstumsprozess der Wirtschaft in der Eurozone identifiziert. Basierend auf den implizierten geglätteten Regimewahrscheinlichkeiten kann eine Datierung des Konjunkturzyklus in der Eurozone vorgenommen werden: Konjunkturzyklen in der Eurozone nicht perfekt ist, können mit der Ausnahme von Finnland für jedes Land simultane Regimewechsel in der mittleren Wachstumsrate identifiziert werden.

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File URL: http://ejournals.duncker-humblot.de/doi/pdf/10.3790/vjh.70.3.339
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Article provided by DIW Berlin, German Institute for Economic Research in its journal Vierteljahrshefte zur Wirtschaftsforschung.

Volume (Year): 70 (2001)
Issue (Month): 3 ()
Pages: 339-351

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Handle: RePEc:diw:diwvjh:70-30-4
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  1. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 61-82, Suppl. De.
  2. Pagan, Adrian, 1997. "Policy, Theory, and the Cycle," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 19-33, Autumn.
  3. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 573-593, Sept.-Oct.
  4. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, February.
  5. Adrian Pagan, 1997. "Towards an Understanding of Some Business Cycle Characteristics," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(1), pages 1-15.
  6. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
  7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
  8. Beyer, A. & Doornik, J.A. & Hendry, D.F., 2000. "Constructing Historical Euro-Zone Data," Economics Working Papers eco2000/10, European University Institute.
  9. 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.
  10. H.-M. Krolzig & H. Lütkepohl, 1995. "Konjunkturanalyse mit Markov-Regimewechselmodellen," SFB 373 Discussion Papers 1995,19, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  11. Bruce E. Hansen, 1995. "Erratum: The Likelihood ratio Test Under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Boston College Working Papers in Economics 296., Boston College Department of Economics.
  12. Kim, C-J., 1991. "Dynamic Linear Models with Markov-Switching," Papers 91-8, York (Canada) - Department of Economics.
  13. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
  14. René Garcia, 1995. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," CIRANO Working Papers 95s-07, CIRANO.
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