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Please use this identifier to cite or link to this item: https://dspace.lboro.ac.uk/2134/724

Title: Multivariate Markov switiching common factor models for the UK
Authors: Mills, Terence C.
Wang, Ping
Keywords: Business cycles
Regime switching
Markov models
Comovement
Great Britain
Issue Date: 2001
Publisher: © Loughborough University
Abstract: We estimate a model that incorporates two key features of business cycles, comovement among economic variables and switching between regimes of boom and slump, to quarterly U.K. data for the last four decades. A common factor, interpreted as a composite indicator of coincident variables, and estimates of turning points from one regime to the other, are extracted from the data by using the Kalman filter and maximum likelihood estimation. Both comovement and regime switching are found to be important features of the U.K. business cycle. The composite indicator produces a sensible representation of the cycle and the estimated turning points agree fairly well with independently determined chronologies. These estimates are sharper than those produced by a univariate Markov switching model of GDP alone. A fairly typical stylised fact of business cycles is confirmed by this model - recessions are steeper and shorter than recoveries.
Description: This is Business Cycle Volatility and Economic Growth Research Paper No. 01/1.
URI: https://dspace.lboro.ac.uk/2134/724
Appears in Collections:Working Papers (Economics)

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