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|Title: ||Searching for the sources of stabilisation in output growth areas: evidence from the G-7 economies|
|Authors: ||Mills, Terence C.|
|Issue Date: ||2000|
|Publisher: ||© Loughborough University|
|Abstract: ||In his influential paper, “A new approach to the economic analysis of
nonstationary time series and the business cycle”, Hamilton (1989) proposed a regime
switching model in which output growth switches between two different states
according to a first order Markov process. Applying this model to the U.S., he
showed that shifts between positive and negative output growth accord well with the
NBER’s chronology of business cycle peaks and troughs.
In the wake of this paper, a large number of researchers have explored various
aspects of the business cycle, such as asymmetry and the duration of economic
fluctuations, using the framework of the Markov switching model. Lam (1990),
Sichel (1993), Durland and McCurdy (1994), Kim (1994), and Kim and Nelson (1998,
1999a, 1999b) are examples of papers that have further analysed U.S. output. Simpson,
Osborn and Sensier (1999) have modelled U.K. data, while Goodwin (1993) and
Mills and Wang (2000) have analysed output from the G-7 countries.
McConnell and Quiros (1999) have recently documented a structural break in
the volatility of U.S. output growth, finding a rather dramatic reduction in output
volatility in the most recent two decades relative to the previous three decades. Using
yet a further extension of the Markov switching model, Kim and Nelson (1999b)
propose a model that includes a separate state variable to capture an unknown
structural break point. They use this model to investigate further the sources of
stabilisation in recent U.S. output, focusing on both the decline in volatility and on the
narrowing gap between mean growth rates during recessions and expansions. They
find that both sources of stabilisation have a role to play, but with stronger evidence in
favour of a narrowing gap between growth rates during expansions and recessions.
Within the context of searching for structural change, our main objective in
this paper is to answer the important question of whether this observed stabilisation in
output is unique to the U.S. We thus adopt the Kim and Nelson (1999b) model to
extend the empirical analysis to the G-7 countries and to present cross-country
|Description: ||This is Business Cycle Volatility and Economic Growth Research Paper No. 00/7.|
|Sponsor: ||This paper forms part of the ESRC funded project (Award No.
L1382511013) “Business Cycle Volatility and Economic
Growth: A Comparative Time Series Study”, which itself is
part of the Understanding the Evolving Macroeconomy
|Appears in Collections:||Working Papers (Economics)|
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