Markov-switching stochastic trends and economic fluctuations

Camacho, Máximo

doi:10.1016/j.jedc.2003.07.002

Cited by 28 publications

(15 citation statements)

References 38 publications

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“…This specification is consistent with the nonlinear adjustment to the equilibrium examined in Savit (1988). 13 Although the equilibrium parameters (represented by matrix ) are state-independent, Camacho (2005) shows that the equilibrium errors follow an MS-VARM under the specification in Equation 4. Indeed, Equation 4 can be obtained from a model where the equilibrium errors follow an MS-VAR process.…”

supporting

confidence: 58%

Interactions between real economic and financial sides of the US economy in a regime-switching environment

2015

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This objective of this study is to examine the linkages between real (economic) and financial variables in the United States in a regime-switching environment that accounts explicitly for high volatility in the stock market and high stress in financial markets. Since the linearity test shows that the linear model should be rejected, we employ the Markov-switching VECM to examine the same objective using the Bayesian Markov-chain Monte Carlo method. The regime-dependent impulse response function (RDIRF) highlights the increasing importance of the financial sector of the economy during stress periods. The responses and their fluctuations are significantly greater in the high-volatility regime than in the low-volatility regime.

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confidence: 58%

Interactions between real economic and financial sides of the US economy in a regime-switching environment

2015

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“…Thus, one needs to analyse the whole system, which implies that a Markov-switching vector error-correction model should be employed instead. Camacho (2005) shows that if the equilibrium errors z t of a generic cointegrated system for the m × 1 vector x t follow a MS-(V)AR,…”

Section: Testing For Asymmetric Adjustmentmentioning

confidence: 99%

“…Estimation is carried out in GAUSS, using the multi-equation version of the Hamilton filter, as explained in Camacho (2005). Table 3 displays results of the estimation of (13), using heteroskedasticity-robust standard errors based on the Outer-Product-Gradient matrix.…”

Section: A Ms-vecm For the Consumption-wealth Ratiomentioning

confidence: 99%

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The Consumption-Wealth Ratio under Asymmetric Adjustment

Gabriel¹,

Alexandre²,

Bac³

2008

Studies in Nonlinear Dynamics &Amp; Econometrics

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This paper argues that nonlinear adjustment may provide a better explanation of fluctuations in the consumption-wealth ratio. The nonlinearity is captured by a Markov-switching vector error-correction model that allows the dynamics of the relationship to differ across regimes. Estimation of the system suggests that these states are related to the behaviour of financial markets. In fact, estimation of the system suggests that short-term deviations in the consumption-wealth ratio will forecast either asset returns or consumption growth: the first when changes in wealth are transitory; the second when changes in wealth are permanent. Our approach uncovers a richer and more complex dynamics in the consumption-wealth ratio than previous results in the literature, whilst being in accordance with theoretical predictions of a simple model of consumption under uncertainty.

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“…Numerous empirical studies reveal that the Markov-switching autoregressive time series model can describe and explain the empirical behaviors of many economic and financial data well, especially the longterm behavior of these data. Some examples include Sola and Driffill (1994), Ang and Bekaert (2002a,b), Camacho (2005), Lux and Kaizoji (2007), and others.…”

Section: Introductionmentioning

confidence: 99%