Business cycle dynamics after the Great Recession: An extended Markov-Switching Dynamic Factor Model
The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put fo...
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| Format: | Elektronisch E-Book |
| Sprache: | English |
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Paris
OECD Publishing
2020
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| Schriftenreihe: | OECD Statistics Working Papers
no.2020/01 |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Zusammenfassung: | The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put forward an extension of the standard Markov-Switching Dynamic Factor Model (MS-DFM) by incorporating two new features: switches in volatility and time-variation in trend GDP growth. First, we show that volatility switches largely improve the detection of business cycle turning points in the low-volatility environment prevailing since the mid-1980s. It is an important result for the detection of future recessions since, according to our model, the US economy is now back to a low-volatility environment after an interruption during the Great Recession. Second, our model also captures a continuous decline in the US trend GDP growth that started a few years before the Great Recession and continued thereafter. These two extensions of the standard MS-DFM framework are supported by information criteria, marginal likelihood comparisons and improved real-time GDP forecasting performance. |
| Beschreibung: | 1 Online-Ressource (54 p.) |
| DOI: | 10.1787/9626dda3-en |
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| spelling | Doz, Catherine VerfasserIn aut Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model Catherine, Doz, Laurent, Ferrara and Pierre-Alain, Pionnier Paris OECD Publishing 2020 1 Online-Ressource (54 p.) Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier OECD Statistics Working Papers no.2020/01 The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put forward an extension of the standard Markov-Switching Dynamic Factor Model (MS-DFM) by incorporating two new features: switches in volatility and time-variation in trend GDP growth. First, we show that volatility switches largely improve the detection of business cycle turning points in the low-volatility environment prevailing since the mid-1980s. It is an important result for the detection of future recessions since, according to our model, the US economy is now back to a low-volatility environment after an interruption during the Great Recession. Second, our model also captures a continuous decline in the US trend GDP growth that started a few years before the Great Recession and continued thereafter. These two extensions of the standard MS-DFM framework are supported by information criteria, marginal likelihood comparisons and improved real-time GDP forecasting performance. Economics Ferrara, Laurent MitwirkendeR ctb Pionnier, Pierre-Alain MitwirkendeR ctb FWS01 ZDB-13-SOC FWS_PDA_SOC https://doi.org/10.1787/9626dda3-en Volltext |
| spellingShingle | Doz, Catherine Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model Economics |
| title | Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model |
| title_auth | Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model |
| title_exact_search | Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model |
| title_full | Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model Catherine, Doz, Laurent, Ferrara and Pierre-Alain, Pionnier |
| title_fullStr | Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model Catherine, Doz, Laurent, Ferrara and Pierre-Alain, Pionnier |
| title_full_unstemmed | Business cycle dynamics after the Great Recession An extended Markov-Switching Dynamic Factor Model Catherine, Doz, Laurent, Ferrara and Pierre-Alain, Pionnier |
| title_short | Business cycle dynamics after the Great Recession |
| title_sort | business cycle dynamics after the great recession an extended markov switching dynamic factor model |
| title_sub | An extended Markov-Switching Dynamic Factor Model |
| topic | Economics |
| topic_facet | Economics |
| url | https://doi.org/10.1787/9626dda3-en |
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