Modelling business cycle movements in the UK economy

Citation
Pw. Simpson et al., Modelling business cycle movements in the UK economy, ECONOMICA, 68(270), 2001, pp. 243-267
Citations number
36
Categorie Soggetti
Economics
Journal title
ECONOMICA
ISSN journal
00130427 → ACNP
Volume
68
Issue
270
Year of publication
2001
Pages
243 - 267
Database
ISI
SICI code
0013-0427(200105)68:270<243:MBCMIT>2.0.ZU;2-A
Abstract
This paper models the phases of the UK business cycle using GDP data with a time-varying transition probabilities (TVTP) Markov-switching regime model and exogenous leading indicator variables. Single indicators in linear mod els are compared with the TVTP framework. with logistic and exponential fun ctions used in the latter. The Markov-switching models capture the major re cessions of the sample, but the use of leading indicators through the TVTP framework can improve this regime recognition. Finally, a forecast comparis on shows that the TVTP models perform relatively well in predicting during the 1990s, particularly when nominal interest rates are used to generate th e regime-switching probabilities.