Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ems/eureir/1407.html
   My bibliography  Save this paper

Modelling Multiple Regimes in the Business Cycle

Author

Listed:
  • van Dijk, D.J.C.
  • Franses, Ph.H.B.F.
Abstract
The interest in business cycle asymmetry has been steadily increasing over the last fifteen years. Most research has focused on the different behaviour of macroeconomic variables during expansions and contractions, which by now is well documented. Recent evidence suggests that such a two-phase characterization of the business cycle might be too restrictive. In particular, it might be worthwhile to decompose the recovery phase in a high-growth phase (immediately following the trough of a cycle) and a subsequent moderate-growth phase. In this paper, the issue of multiple regimes is addressed using Smooth Transition AutoRegressive [STAR] models. A possible limitation of STAR models as they are currently used is that essentially they deal with only two regimes. We propose a generalization of the STAR model such that more than two regimes can be accommodated. It is demonstrated that the class of Multiple Regime STAR [MRSTAR] models can be obtained from the two-regime model in an elegant way. The main properties of the MRSTAR model and several issues which might be relevant for empirical specification are discussed in detail. In particular, a Lagrange Multiplier-type test is derived which can be used to determine the appropriate number of regimes. Application of the new model class to US real GNP and US unemployment rate provides evidence in favor of the existence of multiple business cycle phases.

Suggested Citation

  • van Dijk, D.J.C. & Franses, Ph.H.B.F., 1997. "Modelling Multiple Regimes in the Business Cycle," Econometric Institute Research Papers EI 9734/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:1407
    as

    Download full text from publisher

    File URL: https://repub.eur.nl/pub/1407/eeb19960111120068.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. K. S. Chan & H. Tong, 1986. "On Estimating Thresholds In Autoregressive Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 7(3), pages 179-190, May.
    2. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
    3. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
    4. Sichel, Daniel E, 1993. "Business Cycle Asymmetry: A Deeper Look," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 224-236, April.
    5. Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 109-125, April-Jun.
    6. Skalin, Joakim & Terasvirta, Timo, 1999. "Another Look at Swedish Business Cycles, 1861-1988," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 359-378, July-Aug..
    7. Rothman, Philip, 1991. "Further evidence on the asymmetric behavior of unemployment rates over the business cycle," Journal of Macroeconomics, Elsevier, vol. 13(2), pages 291-298.
    8. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September.
    9. Boldin Michael D., 1996. "A Check on the Robustness of Hamilton's Markov Switching Model Approach to the Economic Analysis of the Business Cycle," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(1), pages 1-14, April.
    10. Sichel, Daniel E, 1991. "Business Cycle Duration Dependence: A Parametric Approach," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 254-260, May.
    11. Emery, Kenneth M. & Koenig, Evan F., 1992. "Forecasting turning points : Is a two-state characterization of the business cycle appropriate?," Economics Letters, Elsevier, vol. 39(4), pages 431-435, August.
    12. McQueen, Grant & Thorley, Steven, 1993. "Asymmetric business cycle turning points," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 341-362, June.
    13. Sichel, Daniel E, 1989. "Are Business Cycles Asymmetric? A Correction," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1255-1260, October.
    14. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
    15. Sichel, Daniel E, 1994. "Inventories and the Three Phases of the Business Cycle," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 269-277, July.
    16. Falk, Barry, 1986. "Further Evidence on the Asymmetric Behavior of Economic Time Series over the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1096-1109, October.
    17. Hess, Gregory D & Iwata, Shigeru, 1997. "Measuring and Comparing Business-Cycle Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 432-444, October.
    18. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
    19. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    20. Jansen, Eilev S & Terasvirta, Timo, 1996. "Testing Parameter Constancy and Super Exogeneity in Econometric Equations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 735-763, November.
    21. Canova, Fabio, 1994. "Detrending and turning points," European Economic Review, Elsevier, vol. 38(3-4), pages 614-623, April.
    22. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    23. Durland, J Michael & McCurdy, Thomas H, 1994. "Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 279-288, July.
    24. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    25. Astatkie, T. & Watts, D. G. & Watt, W. E., 1997. "Nested threshold autoregressive (NeTAR) models," International Journal of Forecasting, Elsevier, vol. 13(1), pages 105-116, March.
    26. Wynne, Mark A. & Balke, Nathan S., 1992. "Are deep recessions followed by strong recoveries?," Economics Letters, Elsevier, vol. 39(2), pages 183-189, June.
    27. Ramsey, James B & Rothman, Philip, 1996. "Time Irreversibility and Business Cycle Asymmetry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 1-21, February.
    28. Neftci, Salih N, 1993. "Statistical Analysis of Shapes in Macroeconomic Time Series: Is There a Business Cycle?," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 215-224, April.
    29. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
    30. Granger, Clive W. J. & Terasvirta, Timo, 1993. "Modelling Non-Linear Economic Relationships," OUP Catalogue, Oxford University Press, number 9780198773207.
    31. Hansen Bruce E., 1997. "Inference in TAR Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(1), pages 1-16, April.
    32. Pesaran, M. Hashem & Potter, Simon M., 1997. "A floor and ceiling model of US output," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 661-695, May.
    33. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-328, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.

    More about this item

    Keywords

    Lagrange multiplier test; business cycle asymmetry; multiple regimes; smooth transition autoregression;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ems:eureir:1407. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: RePub (email available below). General contact details of provider: https://edirc.repec.org/data/feeurnl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.