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Can regime‐switching models reproduce the business cycle features of US aggregate consumption, investment and output?
Author(s) -
Clements Michael P.,
Krolzig HansMartin
Publication year - 2004
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.231
Subject(s) - cointegration , business cycle , economics , autoregressive model , econometrics , markov chain , univariate , consumption (sociology) , investment (military) , aggregate (composite) , multivariate statistics , macroeconomics , mathematics , statistics , social science , materials science , sociology , politics , political science , law , composite material
The ability of Markov‐switching (MS) autoregressive models to replicate selected classical business cycle features found in US post‐war consumption, investment and output is compared to that of linear models. Univariate MS models appear to offer more dynamically parsimonious representations, but generally are unable to reproduce features missed by linear models. In the multivariate models, some cointegration restrictions were found to have a crucial impact, and the ability of models that imposed cointegration to reproduce business cycle features was enhanced by Markov switching. Copyright © 2004 John Wiley & Sons, Ltd.