Karalis Isaac, Alexander (2014) Higher moments of MSVARs and the business cycle. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
I derive the first four moments of the Markov-switching VAR and use the results to reconsider the con ict between the Great Moderation and Financial Crisis literatures. In contrast to the linear model, a three-regime Markov-switching model captures the skewness and kurtosis of US GDP growth 1954-2011. However, a specification with four regimes splits the sample in 1984, a result familiar from the Great Moderation literature. The higher moments of the MSVAR, not previously studied in the literature, reveal the Great Moderation to be a trade off between variance and kurtosis. U.S. GDP growth shifts from an almost Gaussian structure 1954-84 into a pattern with low variance, negative skewness and high kurtosis. The Markov-switching model which splits the sample accurately captures the new moment structure.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BCAM 1405; ISSN 1745-8587 |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Administrator |
| Date Deposited: | 21 Mar 2019 16:24 |
| Last Modified: | 02 Aug 2023 17:49 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26600 |
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