Business Cycle Asymmetries: Characterisation and Testing based on Markov-Switching Autoregressions
|Speaker:||Mike Clements, University of Warwick|
|Date:||Friday 17 November 2000|
|Location:||Room 106 Streatam Court|
(with Hans-Martin Krolzig)
We propose testing for business cycle first-moment asymmetries in Markov-switching autoregressive (MS-AR) models. We derive the parametric restrictions on MS-AR models that rule out types of asymmetries such as deepness, steepness, and sharpness, and set out a testing procedure based on Wald statistics which have standard asymptotics. For a two-regime model, such as that popularised by Hamilton 1989, we show that deepness implies sharpness (and vice versa) while the process is always non-steep. We illustrate with two and three-state MS-AR models of US GNP growth, and with models of US output, consumption and investment growth. Our findings are compared with those obtained from standard non-parametric tests, which are unable to distinguish between first-moment asymmetries and heteroscedasticity.