Business cycle dynamics after the Great Recession: An Extended Markov-Switching Dynamic Factor Model - Paris-Jourdan Sciences Économiques Accéder directement au contenu
Pré-Publication, Document De Travail Année : 2020

Business cycle dynamics after the Great Recession: An Extended Markov-Switching Dynamic Factor Model

Résumé

The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put forward an extension of the standard Markov-Switching Dynamic Factor Model (MS-DFM) by incorporating two new features: switches in volatility and time-variation in trend GDP growth. First, we show that volatility switches largely improve the detection of business cycle turning points in the low-volatility environment prevailing since the mid-1980s. It is an important result for the detection of future recessions since, according to our model, the US economy is now back to a low-volatility environment after an interruption during the Great Recession. Second, our model also captures a continuous decline in the US trend GDP growth that started a few years before the Great Recession and continued thereafter. These two extensions of the standard MS-DFM framework are supported by information criteria, marginal likelihood comparisons and improved real-time GDP forecasting performance.
Fichier principal
Vignette du fichier
wp2020_03_.pdf (2.06 Mo) Télécharger le fichier
Origine : Fichiers produits par l'(les) auteur(s)
Loading...

Dates et versions

halshs-02443364 , version 1 (17-01-2020)

Identifiants

  • HAL Id : halshs-02443364 , version 1

Citer

Catherine Doz, Laurent Ferrara, Pierre-Alain Pionnier. Business cycle dynamics after the Great Recession: An Extended Markov-Switching Dynamic Factor Model. 2020. ⟨halshs-02443364⟩
298 Consultations
288 Téléchargements

Partager

Gmail Facebook X LinkedIn More