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A New Approach to the Analysis of Business Cycle Transitions in a Model of Output and Employment

Author

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  • Hans-Martin Krolzig
  • Juan Toro
  • European University Institute
  • Florence

Abstract

This paper proposes a new framework for the impulse-response analysis of business cycle transitions. A cointegrated vector autoregressive Markov-switching model is found to be a congruent representation of post-war US employment and output data. In this model some parameters change according to the phase of the business cycle which effects employment and output simultaneously. The long run dynamics are characterized by a cointegrating vector including employment, output and a trend as a proxy for technological progress and capital accumulation. Short-run and long-run dynamics are jointly estimated in a Markov-switching vector-equilibrium-correction model with three regimes representing recession, growth and high growth. For the analysis of the dynamics of output and employment, a new set of impulse-response exercises is considered.

Suggested Citation

  • Hans-Martin Krolzig & Juan Toro & European University Institute & Florence, 2001. "A New Approach to the Analysis of Business Cycle Transitions in a Model of Output and Employment," Economics Series Working Papers 59, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:59
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    Cited by:

    1. Carstensen, Kai & Heinrich, Markus & Reif, Magnus & Wolters, Maik H., 2020. "Predicting ordinary and severe recessions with a three-state Markov-switching dynamic factor model," International Journal of Forecasting, Elsevier, vol. 36(3), pages 829-850.
    2. Jorge Andrés Tamayo Castaño, 2012. "Asimetrías en la demanda por trabajo en Colombia: el papel del ciclo económico," Borradores de Economia 689, Banco de la Republica de Colombia.
    3. Utku Akseki & Abdurrahman Nazif Çatık & Barış Gök, 2014. "A regime-dependent investigation of the impact of macroeconomic variables on the housing market activity in Turkey," Economics Bulletin, AccessEcon, vol. 34(2), pages 1081-1090.
    4. Magnus Reif, 2020. "Macroeconomics, Nonlinearities, and the Business Cycle," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 87.
    5. Eric Girardin, 2005. "Growth-cycle features of East Asian countries: are they similar?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 143-156.
    6. Brümmer, B. & Zorya, S., 2006. "Analyse von Politikeingriffen auf den Märkten für Weizen und Weizenmehl in Ukraine anhand eines Markov-Switching Fehlerkorrekturmodells," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 41, March.
    7. Eric Girardin, 2004. "Regime-Dependent Synchronization of Growth Cycles between Japan and East Asia," Asian Economic Papers, MIT Press, vol. 3(3), pages 147-176.
    8. Matteo Manera & Alessandro Cologni, 2006. "The Asymmetric Effects of Oil Shocks on Output Growth: A Markov-Switching Analysis for the G-7 Countries," Working Papers 2006.29, Fondazione Eni Enrico Mattei.
    9. Karamé, Frédéric, 2015. "Asymmetries and Markov-switching structural VAR," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 85-102.
    10. Heinrich, Markus & Carstensen, Kai & Reif, Magnus & Wolters, Maik, 2017. "Predicting Ordinary and Severe Recessions with a Three-State Markov-Switching Dynamic Factor Model. An Application to the German Business Cycle," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168206, Verein für Socialpolitik / German Economic Association.
    11. Carlo Di Giorgio, 2016. "Business Cycle Synchronization of CEECs with the Euro Area: A Regime Switching Approach," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 284-300, March.
    12. Tamayo Castaño, Jorge Andrés, 2012. "Asimetrías en la demanda por trabajo en Colombia : el papel del ciclo económico," Chapters, in: Arango-Thomas, Luis Eduardo & Hamann-Salcedo, Franz Alonso (ed.), El mercado de trabajo en Colombia : hechos, tendencias e instituciones, chapter 12, pages 487-542, Banco de la Republica de Colombia.
    13. Brümmer, Bernhard & Zorya, Sergiy, 2005. "Wheat / Flour Price Transmission and Agricultural Policies in Ukraine: A Markov-Switching Vector Error Correction Approach," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24624, European Association of Agricultural Economists.
    14. Proaño, Christian R. & Tarassow, Artur, 2018. "Evaluating the predicting power of ordered probit models for multiple business cycle phases in the U.S. and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 50(C), pages 60-71.
    15. Brümmer, Bernhard & von Cramon-Taubadel, Stephan & Zorya, Sergiy, 2006. "Vertical Price Transmission between Wheat and Flour in Ukraine: A Markov-Switching Vector Error Correction Approach," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25575, International Association of Agricultural Economists.
    16. Ozili, Peterson K, 2020. "Financial inclusion and business cycles," MPRA Paper 102054, University Library of Munich, Germany.
    17. Ihle, Rico & von Cramon-Taubadel, Stephan, 2008. "A Comparison of Threshold Cointegration and Markov-Switching Vector Error Correction Models in Price Transmission Analysis," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37603, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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    More about this item

    Keywords

    business cycles; impulse-response analysis; cointegration; regime shifts; Markov switching; labour hoarding;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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