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Cyclical dynamics of industrial production and employment: Markov chain-based estimates and tests

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  • Altug, Sumru
  • Tan, Barış
  • Gencer, Gözde

Abstract

The purpose of this paper is to understand differences in cyclical phenomena across a broad range of developed and emerging countries based on the behavior of two key economic times series—industrial production and employment. The paper characterizes the series in question as a recurring Markov chain. Univariate processes are estimated for each series individually, and a composite indicator is constructed by using information on both series. Based on tests of equality of the estimated Markov chains across countries as well as the expected times to switch between different states, we find evidence that (i) the developed and emerging economies are “de-coupled” from each other in terms of their cyclical dynamics, and (ii) the behavior of industrial production and employment growth are “de-coupled” for the emerging economies. Our results suggest new directions for the analysis of emerging economy cyclical fluctuations.

Suggested Citation

  • Altug, Sumru & Tan, Barış & Gencer, Gözde, 2012. "Cyclical dynamics of industrial production and employment: Markov chain-based estimates and tests," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1534-1550.
  • Handle: RePEc:eee:dyncon:v:36:y:2012:i:10:p:1534-1550
    DOI: 10.1016/j.jedc.2012.03.016
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    References listed on IDEAS

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    More about this item

    Keywords

    Markov chain; Tests of time homogeneity and time dependence; Composite indicator;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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