Evaluation of Regime Switching Models for Real‐Time Business Cycle Analysis of the Euro Area

Billio, Monica; Ferrara, Laurent; Guégan, Dominique; Mazzi, Gian Luigi

doi:10.1002/for.2260

Cited by 23 publications

(12 citation statements)

References 15 publications

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“…We refer for example to the threshold autoregressive (TAR) model, introduced by Tong (1990) or the smooth transition autoregressive (STAR) model, put forward by Teräsvirta (1994), Such models differ from MS models in the sense that the variable governing changes in regimes is observed, leading thus to easier statistical inference. Those models have also proved useful to identify business cycles as shown for example by Deschamps (2008) or Billio et al (2013). However, in this latter paper on euro area data, it has been shown that MS models tend to be more reliable as they send fewer false signals of recessions.…”

Section: Introductionmentioning

confidence: 85%

A new monthly chronology of the US industrial cycles in the prewar economy

Charles

Darné²,

Diebolt

et al. 2015

Journal of Financial Stability

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International audienceThis article extends earlier efforts at redating the US industrial cycles for the prewar period (1890-1938) using the methodologies proposed by Bry and Boschan (1971) and Hamilton (1989) and based on the monthly industrial production index constructed by Miron and Romer (1990) and modified by Romer (1994). The alternative chronology detects 90% of the peaks and troughs identified by the NBER and Romer (1994), but the new dates are consistently dated earlier for more than 50% of them, especially as regards the NBER troughs. The new dates affect the comparison of the average duration of recessions and expansions in both pre-WWI and interwar eras. Whereas the NBER reference dates show an increase in average duration of the expansions between the pre-WWI and interwar periods, the new dates show evidence of shortened length of expansions. However, the new dates confirm the traditional finding that contractions lasted longer in the postwar period than during the prewar period

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Section: Introductionmentioning

confidence: 85%

A new monthly chronology of the US industrial cycles in the prewar economy

Charles

Darné²,

Diebolt

et al. 2015

Journal of Financial Stability

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“…Our paper also extends Kaufmann (2010), where a panel of univariate Markov-switching (MS) regression models is considered, by constructing a multivariate panel MSVAR structure for the country-specific time series. We build on basic model structures of Hamilton (1989) and Krolzig (2000) and consider Markov-switching dynamics for low and high frequency components that are specified as conditional means and covariance matrices of country-specific equations (see also Billio et al (2012), Basturk et al (2014) and Billio et al (2013b)). We further build on Kaufmann (2015) and use an endogenous time-varying transition mechanism to model the transition matrix of the country-specific Markov-chains.…”

Section: Introductionmentioning

confidence: 99%

Interconnections between Eurozone and US Booms and Busts Using a Bayesian Panel Markov-Switching VAR Mode

et al. 2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractInterconnections between Eurozone and United States booms and busts and among major Eurozone economies are analyzed using a Panel Markov-Switching VAR model. The model accommodates changes in low and high data frequencies and incorporates endogenous time-varying transition matrices of country-specific Markov chains. These country-specific Markov chains depend on their own past history and the history of other chains, thus allowing for interconnections between cycles, and an endogenous common Eurozone cycle is derived by aggregating the country-specific cycles. The model is estimated using a simulation based Bayesian approach in which an efficient multimove sampling algorithm is defined to draw time-varying Markov-switching chains. Using industrial production growth and credit spread data for all countries, several empirical results have emerged. Recession, slow growth and expansion are empirically identified as three regimes with slow growth becoming persistent in the Eurozone in recent years different from the US. The Eurozone and the US regimes appear not fully synchronized, with evidence of more recessions in the Eurozone. Second, turning point analysis indicates larger synchronization at the beginning of the Great Financial Crisis: this shock affects the US first, leading the Eurozone cycle, and spreads then rapidly among these economies. Third, amplification effects influence recession probabilities for Eurozone countries when shocks occur. The evidence is different for the US where this reinforcement does not exist. In recent years there are more imbalances among regimes in Eurozone countries. Fourth, a credit shock results in substantial negative industrial production growth for several months in Germany, Spain and the US. Our empirical results point towards the existence of a group of core countries: Germany, France and * We thank the co-editor Fabio Canova, three anonymous referees and conference and seminar participants

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“…Our paper also extends Kaufmann (2010), where a panel of univariate Markov-switching (MS) regression models is considered, by constructing a multivariate panel MSVAR structure for the country-specific time series. We build on models of Hamilton (1989) and Krolzig (2000) and consider Markov-switching dynamics for low and high frequency components, that is means and covariance matrices of the country-specific equations (see also Billio et al (2012), Basturk et al (2013) and Billio et al (2013b)).…”

Section: Introductionmentioning

confidence: 99%

Interactions between Eurozone and US Booms and Busts: A Bayesian Panel Markov-Switching VAR Model

et al. 2013

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Interactions between eurozone and United States booms and busts and among major eurozone economies are analyzed by introducing a panel Markov-switching VAR model. The model is well suitable for a multi-country cyclical analysis and accommodates changes in low and high data frequencies and endogenous time-varying transition matrices of the country-specific Markov chains. The transition matrix of each Markov chain depends on its own past history and on the history of other chains, thus allowing for modelling the interactions between cycles. An endogenous common eurozone cycle is derived by aggregating country-specific cycles. The model is estimated using a simulation based Bayesian approach in which an efficient multi-move algorithm is defined to draw time-varying Markov-switching chains. Using real and financial data on industrial production growth and credit spread for all countries, our main empirical results are as follows. Recession, slow recovery and expansion are empirically identified as three regimes with slow recovery becoming persistent in the eurozone in recent years differing from the US. US and eurozone cycles are not fully synchronized over the 1991-2013 period, with evidence of more recessions in the eurozone, in particular during the 90's. Larger synchronization across regions occurs at beginning of the financial crisis but recently more heterogeneity takes place. Cluster analysis yields a group of core countries: Germany, France and Netherlands and a group of peripheral countries Spain * We thank the co-editor Fabio Canova, three anonymous referees and conference and seminar participants at the: and Italy. Reinforcement effects in the recession probabilities and in the probabilities of exiting recessions occur for both eurozone and US with substantial differences in phase transitions within the eurozone. Finally, credit spreads provide accurate predictive content for business cycle fluctuations. A credit shock results in statistically significant negative industrial production growth for several months in Germany, Spain and US. Our empirical result may serve as important information for the specification of a coordinated policy between the eurozone and the US and within the eurozone.JEL codes: C11, C15, C53, E37.

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Evaluation of Regime Switching Models for Real‐Time Business Cycle Analysis of the Euro Area

Cited by 23 publications

References 15 publications

A new monthly chronology of the US industrial cycles in the prewar economy

A new monthly chronology of the US industrial cycles in the prewar economy

Interconnections between Eurozone and US Booms and Busts Using a Bayesian Panel Markov-Switching VAR Mode

Interactions between Eurozone and US Booms and Busts: A Bayesian Panel Markov-Switching VAR Model

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