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Testing for business cycle asymmetries based on autoregressions with a Markov-switching intercept

  • Knüppel, Malte

In this paper, we investigate the implications of the two concepts of asymmetry defined by Sichel (1993) - deepness and steepness - for first-order autoregressive processes with a Markov-switching intercept. In order to do so, we derive the two required formulas determining the coefficient of skewness of first-order autoregressive processes with a Markov-switching intercept and the coefficient of skewness of the first differences of these processes. For the special case of two states, we present the parameter restrictions leading to non-deepness and non-steepness. We show that these restrictions imply that the conclusions of Clements & Krolzig (2003) with respect to asymmetries of processes with a Markov-switching intercept are not correct. Finally, we apply the results to U.S. GDP which is found to exhibit strongly significant deepness and steepness.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2004,41.

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Date of creation: 2004
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Handle: RePEc:zbw:bubdp1:2919
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  1. Sichel, D.E., 1988. "Business Cycle Asymmetry: A Deeper Look," Papers 85, Princeton, Department of Economics - Financial Research Center.
  2. W.A. Razzak, 2001. "Business Cycle Asymmetries: International Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 230-243, January.
  3. Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, vol. 70(1), pages 127-157, January.
  4. Clements, Michael P & Krolzig, Hans-Martin, 2003. "Business Cycle Asymmetries: Characterization and Testing Based on Markov-Switching Autoregressions," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 196-211, January.
  5. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
  6. Zacharias Psaradakis & Martin Sola, 2003. "On detrending and cyclical asymmetry," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(3), pages 271-289.
  7. McQueen, Grant & Thorley, Steven, 1993. "Asymmetric business cycle turning points," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 341-362, June.
  8. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
  9. Michael P. Clements & Hans-Martin Krolzig, 1998. "A comparison of the forecast performance of Markov-switching and threshold autoregressive models of US GNP," Econometrics Journal, Royal Economic Society, vol. 1(Conferenc), pages C47-C75.
  10. 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.
  11. 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.
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