Measuring and predicting heterogeneous recessions. (English) Zbl 1402.91580
Summary: This paper examines the usefulness of a more refined business cycle classification for monthly industrial production (IP), beyond the usual distinction between expansions and contractions. Univariate Markov-switching models show that a three regime model is more appropriate than a model with only two regimes. Interestingly, the third regime captures ‘severe recessions’, contrasting the conventional view that the additional third regime represents a ‘recovery’ phase. This is confirmed by means of Markov-switching vector autoregressive models that allow for phase shifts between the cyclical regimes of IP and the Conference Board’s Leading Economic Index (LEI). The timing of the severe recession regime mostly corresponds with periods of substantial financial market distress and severe credit squeezes, providing empirical evidence for the ‘financial accelerator’ theory.
MSC:
| 91B84 | Economic time series analysis |
| 91B82 | Statistical methods; economic indices and measures |
| 91B64 | Macroeconomic theory (monetary models, models of taxation) |
| 62F15 | Bayesian inference |
| 62P20 | Applications of statistics to economics |
Keywords:
business cycle; phase shifts; regime-switching models; Bayesian analysis; financial acceleratorReferences:
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