Real vs. Nominal Cycles: A Multistate Markov-Switching Bi-Factor Approach

37 Pages Posted: 18 Nov 2015

Date Written: December 1, 2014


This paper proposes a probabilistic model based on comovements and nonlinearities useful to assess the type of shock affecting each phase of the business cycle. By providing simultaneous inferences on the phases of real activity and inflation cycles, contractionary episodes are dated and categorized into demand, supply and mix recessions. The impact of shocks originated in the housing market over the business cycle is also assessed, finding that recessions are usually accompanied by housing deflationary pressures, while expansions are mainly influenced by housing demand shocks, with the only exception occurred during the period surrounding the "Great Recession," affected by expansionary housing supply shocks.

Keywords: Business Cycles, Inflation Cycles, Housing Price Cycles, Dynamics Factors, Markov-Switching

JEL Classification: E32, C22, E27

Suggested Citation

Leiva-Leon, Danilo, Real vs. Nominal Cycles: A Multistate Markov-Switching Bi-Factor Approach (December 1, 2014). Studies in Nonlinear Dynamics and Econometrics, Vol. 18, No. 5, 2014, Available at SSRN:

Danilo Leiva-Leon (Contact Author)

Central Bank of Chile ( email )

Research Department
Huerfanos 1185

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