A Test for Structural Change in Markov-Switching Models: Has the U.S. Economy Become More Stable?
34 Pages Posted: 12 Mar 1999
Abstract
We develop a Bayesian test for structural change at an unknown changepoint in Markov-switching models. Unlike the usual Bayesian treatment of the unknown changepoint problem in the literature, we cast the problem into a `model selection' framework. This is done by adopting a prior for the shift parameters that is a mixture of a truncated Normal and point mass at 0. That is, instead of making an inference on structural change indirectly based on the posterior distribution of the changepoint, we make an inference directly based on the posterior probabilities that the shift parameters are 0. When the proposed framework and procedure are applied to the Markov-switching models of postwar real GNP growth and the fixed real investment growth, we find sample evidence in favor of a structural shift toward narrowing gap between the growth rates during booms and recessions. We interpret this as a structural change in the postwar U.S. economy toward more stability.
JEL Classification: C22, C32
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
Recommended Papers
-
By Francis X. Diebold, Lutz Kilian, ...
-
Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth
By Michael Durland and Thomas H. Mccurdy
-
By Chang-jin Kim and Charles R. Nelson
-
Tracking the New Economy: Using Growth Theory to Detect Changes in Trend Productivity
By James A. Kahn and Robert W. Rich
-
Common Stochastic Trends, Common Cycles, and Asymmetry in Economic Fluctuations
By Chang-jin Kim and Jeremy Piger
-
A Bayesian Approach to Testing for Markov Switching in Univariate and Dynamic Factor Models
By Chang-jin Kim and Charles R. Nelson
-
By Chang-jin Kim, Jeremy Piger, ...
-
A Markov-Switching Model of Gnp Growth with Duration Dependence
By Pok-sang Lam
-
The Duration of Economic Expansions and Recessions: More than Duration Dependence
