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Conditional Volatility Asymmetry Of Business Cycles: Evidence From Four Oecd Countries

Author

Listed:
  • KIN-YIP HO

    (The Australian National University, Australia)

  • ALBERT K. TSUI

    (National University of Singapore, Singapore)

  • ZHAOYONG ZHANG

    () (Edith Cowan University, Australia)

Abstract

Most studies of business cycle exclude the dimension of asymmetric conditional volatility. In this paper, we propose three bivariate asymmetric GARCH models to capture the properties of conditional volatility and time-varying conditional correlations of business cycle indicators in four OECD countries. Our study extends the constant conditional correlation framework proposed by Bollerslev (1990) and the time-varying conditional correlation approach by Tse and Tsui (2002), respectively. Using indices of industrial production as proxies for business cycles indicators, we detect statistically significant evidence of asymmetric conditional volatility in the UK and US. Additionally, we find that the conditional correlations are significantly time-varying, and that the strength of varying correlations may be linked to the degree of economic integration between the countries.

Suggested Citation

  • Kin-Yip Ho & Albert K. Tsui & Zhaoyong Zhang, 2013. "Conditional Volatility Asymmetry Of Business Cycles: Evidence From Four Oecd Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(3), pages 33-56, September.
  • Handle: RePEc:jed:journl:v:38:y:2013:i:3:p:33-56
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    References listed on IDEAS

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    6. Sichel, Daniel E, 1989. "Are Business Cycles Asymmetric? A Correction," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1255-1260, October.
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    Cited by:

    1. Anna P. Sandqvist, 2015. "Dynamics of Sectoral Business Cycle Comovement," KOF Working papers 15-398, KOF Swiss Economic Institute, ETH Zurich.

    More about this item

    Keywords

    Business Cycle Non-Linearities; Constant Correlations; Index of Industrial Production; Multivariate Asymmetric GRACH; Varying-Correlations;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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