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

• Autores: Yunjong Eo, Chang-Jin Kim
• Localización: The Review of economics and statistics, ISSN 0034-6535, Vol. 98, Nº 5, 2016, págs. 940-949
• Idioma: inglés
• DOI: 10.1162/rest_a_00561
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• Resumen

  • 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. [ABSTRACT FROM AUTHOR]