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

  • Dalu Zhang

    (University of East Anglia)

  • Peter Moffatt

    (University of East Anglia)

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    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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    Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia School of Economics Working Paper Series with number 047.

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