Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth

11 Pages Posted: 6 Oct 2011

See all articles by Michael Durland

Michael Durland

Bank of Nova Scotia

Thomas H. McCurdy

University of Toronto - Rotman School of Management

Abstract

Hamilton's nonlinear filter is extended to allow state transitions to be duration dependent. Restrictions are imposed on the state transition matrix associated with a tau-order Markov system such that the corresponding first-order conditional transition probabilities are functions of both the inferred current state and also the number of periods the process has been in that state. High-order structure is parsimoniously summarized by the inferred duration variable. Applied to U.S. postwar real GNP growth rates, we obtain evidence in support of nonlinearity, asymmetry between recessions and expansions, and duration dependence for recessions but not for expansions.

Keywords: nonlinear asymmetric cycles, regime switches, time-varying transition probabilities

Suggested Citation

Durland, Michael and McCurdy, Thomas H., Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth. Journal of Business and Economic Statistics, Vol. 12, No. 3, pp. 279-288, July 1994, Available at SSRN: https://ssrn.com/abstract=1939493

Michael Durland

Bank of Nova Scotia ( email )

United States

Thomas H. McCurdy (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3425 (Phone)
416-971-3048 (Fax)

HOME PAGE: http://www-2.rotman.utoronto.ca/~tmccurdy

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