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A New Approach To The Analysis Of Business Cycle Transitions In A Model Of Output And Employment

  • Krolzig, H.-M.
  • Toro, J.

his paper proposes a new framework for the impulse-response analysis of business cycle transitions. A cointegrated vector autoregressive Markov-switching model is found to be a congruent representation of post-war US employment and output data. In this model some parameters change according to the phase of the business cycle which effects employment and output simultaneously. The long run dynamics are characterized by a cointegrating vector including employment, output and a trend as a proxy for technological progress and capital accumulation. Short-run and long-run dynamics are jointly estimated in a Markov-switching vector-equilibrium-correction model with three regimes representing recession, growth and high growth. For the analysis of the dynamics of output and employment, a new set of impulse-response exercises is considered.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 9959.

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Length: 20 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:oxf:wpaper:9959
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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  1. Garcia, Rene, 1998. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 763-88, August.
  2. Bruce E. Hansen, 1995. "Erratum: The Likelihood ratio Test Under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Boston College Working Papers in Economics 296., Boston College Department of Economics.
  3. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
  4. Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report 27, Federal Reserve Bank of Minneapolis.
  5. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  6. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  7. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  8. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  9. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  10. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
  11. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S61-82, Suppl. De.
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