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Business Cycle Asymmetries: Characterisationand Testing Based on Markov-Switching Autoregression

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  • Clements, M.P.
  • Krolzig, H-M.

Abstract

We propose testing for business cycle asymmetries in Markov-switching autoregressive (MS-AR) models. We derive the parametric restrictions on MS-AR models that rule out types of asymmetries such as deepness, steepness, and sharpness, and set out a testing procedure based on Wald statistics which have standard asymptotic. For a two-regime model, such as that popularized by Hamilton (1989), we show that deepness implies sharpness (and vice versa) while the process is always non-steep. We illustrate with two and three-state MS models of US GNP growth, and with models of US output and employment. Our findings are compared with those obtained from standard non-parametric tests.

Suggested Citation

  • Clements, M.P. & Krolzig, H-M., 1999. "Business Cycle Asymmetries: Characterisationand Testing Based on Markov-Switching Autoregression," The Warwick Economics Research Paper Series (TWERPS) 522, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:522
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Knüppel, Malte, 2004. "Testing for business cycle asymmetries based on autoregressions with a Markov-switching intercept," Discussion Paper Series 1: Economic Studies 2004,41, Deutsche Bundesbank.
    2. Peter McAdam, 2007. "USA, Japan and the Euro Area: Comparing Business-Cycle Features," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 135-156.
    3. Harding, Don, 2008. "Detecting and forecasting business cycle turning points," MPRA Paper 33583, University Library of Munich, Germany.
    4. Harding, Don & Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany.
    5. Aka, B.F., 2004. "Do WAEMU Countries Exhibit a Regional Business Cycle?. A Simulated Markov Switching Model for a Western Africa area," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(4).
    6. Clements, Michael P. & Franses, Philip Hans & Swanson, Norman R., 2004. "Forecasting economic and financial time-series with non-linear models," International Journal of Forecasting, Elsevier, vol. 20(2), pages 169-183.
    7. M. Portugal & I.A. de Morais, 2004. "STRUCTURAL CHANGE IN THE BRAZILIAN DEMAND FOR IMPORTS: A regime switching approach," Econometric Society 2004 Latin American Meetings 346, Econometric Society.
    8. Igor Alexandre Clemente de Morais & Marcelo Savino Portugal, 2003. "Business Cycle in the Industrial Production of Brazilian States," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31st Brazilian Economics Meeting] e75, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    Keywords

    BUSINESS CYCLES ; TESTS;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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