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Applying shape and phase restrictions in generalized dynamic categorical models of the business cycle

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  • Don Harding

    () (Department of Economics and Finance, La Trobe University)

Abstract

To match the NBER business cycle features it is necessary to employ Generalised dynamic categorical (GDC) models that impose certain phase restrictions and permit multiple indexes. Theory suggests additional shape restrictions in the form of monotonicity and boundedness of certain transition probabilities. Maximum likelihood and constraint weighted bootstrap estimators are developed to impose these restrictions. In the application these estimators generate improved estimates of how the probability of recession varies with the yield spread.

Suggested Citation

  • Don Harding, 2010. "Applying shape and phase restrictions in generalized dynamic categorical models of the business cycle," Working Papers 2010.05, School of Economics, La Trobe University.
  • Handle: RePEc:ltr:wpaper:2010.05
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    File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0016/130921/2010.05.pdf
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    References listed on IDEAS

    as
    1. Harding, Don & Pagan, Adrian, 2011. "An Econometric Analysis of Some Models for Constructed Binary Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(1), pages 86-95.
    2. Henderson, Daniel J. & Parmeter, Christopher F., 2009. "Imposing Economic Constraints in Nonparametric Regression: Survey, Implementation and Extension," IZA Discussion Papers 4103, Institute for the Study of Labor (IZA).
    3. Racine, Jeffrey S., 2008. "Nonparametric Econometrics: A Primer," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(1), pages 1-88, March.
    4. Jeffrey Racine, 2008. "Nonparametric econometrics: a primer (in Russian)," Quantile, Quantile, issue 4, pages 7-56, March.
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    Cited by:

    1. Monica Billio & Roberto Casarin & Francesco Ravazzolo & Herman K. van Dijk, 2013. "Interactions between eurozone and US booms and busts: A Bayesian panel Markov-switching VAR model," Working Papers 2013:17, Department of Economics, University of Venice "Ca' Foscari", revised 2014.

    More about this item

    Keywords

    Generalized dynamic categorical model; Business cycle; binary variable; Markov process; probit model; yield curve EDIRC Provider-Institution: RePEc:edi:smlatau;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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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