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Time series non-linearity in the real growth / recession-term spread relationship

Listed author(s):
  • Dalu Zhang

    (University of East Anglia)

  • Peter Moffatt

    (University of East Anglia)

This paper examines the existence of time series non-linearity in the real output growth / recession-term spread relationship. Vector Autoregression (VAR), Threshold VAR (TVAR), Structural break VAR (SBVAR), Structural break threshold VAR (SBTVAR) are applied in the analysis. The in-sample results indicate there are non-linear components in this relationship. And this non-linearity tend to be caused by structural breaks. The best in-sample model also shows its robustness on arrival of new information in the out-of-sample tests. We find evidence the model with only structural break non-linearity outperform linear models in 1-quarter, 3-quarter and 4-quarter ahead forecasting.

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File URL: https://archive.uea.ac.uk/menu/depts/eco/research/RePEc/uea/papers_pdf/UEA-AFE-047.pdf
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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Applied and Financial Economics Working Paper Series with number 047.

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Date of creation: Jun 2013
Handle: RePEc:uea:aepppr:2012_47
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