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Business cycle non-linearities in UK consumption and production

Author

Listed:
  • Nadir Ocal

    (Department of Economics, Middle East Technical University, Odtu, Ankara, Turkey)

  • Denise R. Osborn

    (School of Economic Studies, University of Manchester, Manchester M13 9PL, UK)

Abstract

This paper develops non-linear smooth transition autoregressive (STAR) models with two additive smooth transition components to capture the business cycle characteristics of UK real consumers' expenditure and industrial production. The results indicate consumption has essentially two business cycle regimes: recession and expansion. Industrial production, however, is characterized by the three regimes of recession, normal growth and high growth. The transitions describing recovery from recession are very similar for the two variables. Stochastic simulations illustrate the dynamic responses of these models and emphasize that they are locally linear. Our results also indicate that the two-transition STAR models have some forecast advantages over other specifications for periods of contraction. Copyright © 2000 John Wiley & Sons, Ltd.

Suggested Citation

  • Nadir Ocal & Denise R. Osborn, 2000. "Business cycle non-linearities in UK consumption and production," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 27-43.
  • Handle: RePEc:jae:japmet:v:15:y:2000:i:1:p:27-43
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    File URL: http://qed.econ.queensu.ca:80/jae/2000-v15.1/
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    References listed on IDEAS

    as
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