Markov-switching models with evolving regime-specific parameters: Are postwar booms or recessions all alike?

Yunjong Eo, Chang-Jin Kim

    Research output: Contribution to journalArticlepeer-review

    27 Citations (Scopus)

    Abstract

    In this paper,we relax the assumption of constant regime-specific mean growth rates in Hamilton's (1989) two-state Markov-switching model of the business cycle. We introduce a random walk hierarchy prior for each regime-specific mean growth rate and impose a cointegrating relationship between the mean growth rates in recessionary and expansionary periods. By applying the proposed model to postwar U.S. real GDP growth (1947:Q4-2011:Q3), we uncover the evolving nature of the regime-specific mean growth rates of real output in the U.S. business cycle. Additional features of the postwar U.S. business cycle that we uncover include a steady decline in the long-run mean growth rate of real output over the postwar sample and an asymmetric error-correction mechanism when the economy deviates from its long-run equilibrium.

    Original languageEnglish
    Pages (from-to)940-949
    Number of pages10
    JournalReview of Economics and Statistics
    Volume98
    Issue number5
    DOIs
    Publication statusPublished - 2016 Dec 1

    Bibliographical note

    Publisher Copyright:
    © 2016 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

    ASJC Scopus subject areas

    • Social Sciences (miscellaneous)
    • Economics and Econometrics

    Fingerprint

    Dive into the research topics of 'Markov-switching models with evolving regime-specific parameters: Are postwar booms or recessions all alike?'. Together they form a unique fingerprint.

    Cite this