Real vs. nominal cycles: a multistate Markov-switching bi-factor approach

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...

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Bibliographic Details
Published in:Studies in nonlinear dynamics and econometrics 2014-12, Vol.18 (5), p.557-580
Main Author: Leiva-Leon, Danilo
Format: Article
Language:English
Subjects:
Business cycles
C22
Deflation
dynamics factors
E27
E32
Economic models
Housing
housing price cycles
Inflation
inflation cycles
Markov-switching
Recessions
Studies
Supply & demand
United States
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Summary: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.
ISSN:1081-1826
1558-3708
DOI:10.1515/snde-2012-0002