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Secular Volatility Decline of the U.S. Composite Economic Indicator

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Abstract

The paper treats the issue of decreasing volatility of the U.S. economy observed since the mid-1980s. As a measure of volatility the residual variance of a composite economic indicator with Markov switching is used which. Two additional regimes are included capturing the secular shift in volatility. The mixed frequency is allowed for permitting the use of both monthly and quarterly component series. The low-intercept regime probabilities comply to the NBER business cycle dating, while the low-variance regime probabilities indicate the beginning of 1984 as a possible date of the structural break in volatility.

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  • Kholodilin, K.A., 2002. "Secular Volatility Decline of the U.S. Composite Economic Indicator," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 2(2).
    • Handle: RePEc:eaa:aeinde:v:2:y:2002:i:2_3
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    1. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
    2. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-996, November.
    3. Layton, Allan P. & Katsuura, Masaki, 2001. "Comparison of regime switching, probit and logit models in dating and forecasting US business cycles," International Journal of Forecasting, Elsevier, vol. 17(3), pages 403-417.
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