TY - JOUR
T1 - Markov-switching models with evolving regime-specific parameters
T2 - Are postwar booms or recessions all alike?
AU - Eo, Yunjong
AU - Kim, Chang Jin
N1 - Publisher Copyright:
© 2016 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 2016/12/1
Y1 - 2016/12/1
N2 - In this paper,we relax the assumption of constant regime-specific mean growth rates in Hamilton's (1989) two-state Markov-switching model of the business cycle. We introduce a random walk hierarchy prior for each regime-specific mean growth rate and impose a cointegrating relationship between the mean growth rates in recessionary and expansionary periods. By applying the proposed model to postwar U.S. real GDP growth (1947:Q4-2011:Q3), we uncover the evolving nature of the regime-specific mean growth rates of real output in the U.S. business cycle. Additional features of the postwar U.S. business cycle that we uncover include a steady decline in the long-run mean growth rate of real output over the postwar sample and an asymmetric error-correction mechanism when the economy deviates from its long-run equilibrium.
AB - In this paper,we relax the assumption of constant regime-specific mean growth rates in Hamilton's (1989) two-state Markov-switching model of the business cycle. We introduce a random walk hierarchy prior for each regime-specific mean growth rate and impose a cointegrating relationship between the mean growth rates in recessionary and expansionary periods. By applying the proposed model to postwar U.S. real GDP growth (1947:Q4-2011:Q3), we uncover the evolving nature of the regime-specific mean growth rates of real output in the U.S. business cycle. Additional features of the postwar U.S. business cycle that we uncover include a steady decline in the long-run mean growth rate of real output over the postwar sample and an asymmetric error-correction mechanism when the economy deviates from its long-run equilibrium.
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U2 - 10.1162/REST_a_00561
DO - 10.1162/REST_a_00561
M3 - Article
AN - SCOPUS:85003934148
VL - 98
SP - 940
EP - 949
JO - Review of Economics and Statistics
JF - Review of Economics and Statistics
SN - 0034-6535
IS - 5
ER -