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Business cycle non‐linearities in UK consumption and production
Author(s) -
Öcal Nadir,
Osborn Denise R.
Publication year - 2000
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/(sici)1099-1255(200001/02)15:1<27::aid-jae552>3.0.co;2-f
Subject(s) - business cycle , recession , autoregressive model , industrial production , economics , consumption (sociology) , econometrics , production (economics) , transition (genetics) , microeconomics , macroeconomics , biochemistry , chemistry , sociology , gene , social science
This paper develops non‐linear smooth transition autoregressive (STAR) models with two additive smooth transition components to capture the business cycle characteristics of UK real consumers' expenditure and industrial production. The results indicate consumption has essentially two business cycle regimes: recession and expansion. Industrial production, however, is characterized by the three regimes of recession, normal growth and high growth. The transitions describing recovery from recession are very similar for the two variables. Stochastic simulations illustrate the dynamic responses of these models and emphasize that they are locally linear. Our results also indicate that the two‐transition STAR models have some forecast advantages over other specifications for periods of contraction. Copyright © 2000 John Wiley & Sons, Ltd.