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Duration-dependent Markov-switching model: an empirical study for the Brazilian business cycle

Author

Listed:
  • Fernando H.P.S Mendes

    (Federal University of Rio Grande do Sul)

  • João Frois Caldeira

    (Federal University of Rio Grande do Sul)

  • Guilherme Valle Moura

    (Federal University of Santa Catarina)

Abstract

This paper uses a duration-dependent Markov-switching model to identify business cycles in the Brazilian economy and to test for the presence of duration dependence in periods of expansion and contraction. The model is estimated using the growth rate of quarterly GDP from 1980:II to 2016:II. In the empirical application we found evidence of significant asymmetry in growth rates and duration dependence in the business cycle transition probabilities. The parameter estimates indicated that as the recession ages, the probability of a transition into an expansion increases (positive duration dependence in recessions). On the other hand, as the expansions ages, the probability of a transition into a recession decreases (negative duration dependence in expansions). The smoothed probabilities of the model captured several periods of contraction during the last three decades, matching the recession dates of the Business Cycle Dating Committee (CODACE) from the Getúlio Vargas Foundation.

Suggested Citation

  • Fernando H.P.S Mendes & João Frois Caldeira & Guilherme Valle Moura, 2019. "Duration-dependent Markov-switching model: an empirical study for the Brazilian business cycle," Economics Bulletin, AccessEcon, vol. 39(1), pages 676-685.
  • Handle: RePEc:ebl:ecbull:eb-18-00262
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Business Cycles; Markov-switching model; Duration Dependence;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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