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Interconnections Between Eurozone and US Booms and Busts Using a Bayesian Panel Markov‐Switching VAR Model
Author(s) -
Billio Monica,
Casarin Roberto,
Ravazzolo Francesco,
Van Dijk Herman K.
Publication year - 2016
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/jae.2501
Subject(s) - markov chain , bayesian vector autoregression , economics , boom , econometrics , recession , panel data , bayesian probability , great recession , shock (circulatory) , macroeconomics , statistics , keynesian economics , mathematics , engineering , medicine , environmental engineering
Summary The proposed panel Markov‐switching VAR model accommodates changes in low and high data frequencies and incorporates endogenous time‐varying transition matrices of country‐specific Markov chains, allowing for interconnections. An efficient multi‐move sampling algorithm draws time‐varying Markov‐switching chains. Using industrial production growth and credit spread data, several important data features are obtained. Three regimes appear, with slow growth becoming persistent in the eurozone. Turning point analysis indicates the USA leading the eurozone cycle. Amplification effects influence recession probabilities for Eurozone countries. A credit shock results in temporary negative industrial production growth in Germany, Spain and the USA. Core and peripheral countries exist in the eurozone. Copyright © 2016 John Wiley & Sons, Ltd.