Analysis of the U.S. Business Cycle with a Vector-Markov-Switching Model

This paper identifies turning points for the U.S. business cycle using different time series. The model, a multivariate Markov-Swiching model, assumes that each series is characterized by a mixture of two normal distributions (a high and low mean) with switching determined by a common Markov process. The procedure is applied to the series that make up the composite U.S. coincident indicator to obtain business cycle turning points. The business cycle chronology is closer to the NBER reference cycle than the turning points obtained from the individual series using a univariate model. The model is also used to forecast the series, with encouraging results.
Publication date: August 1999
ISBN: 9781451852967
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Development - Economic Development , Development - Economic Development , Business Cycle , Regime Switching , NBER Business Cycle Chronology , probability , forecasting , time series

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