The Possible Shapes of Recoveries in Markov-Switching Models

Bouabdallah, Othman; Ferrara, Laurent

doi:10.2139/ssrn.1783585

Cited by 29 publications

(17 citation statements)

References 51 publications

(39 reference statements)

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“…Hence, it is likely to play a role in the close neighbourhood of a trough. Moreover, and contrary to the empirical evidence found in Kim et al [2005], Morley and Piger [2009] and Bec et al [2011a] from US data, the depth of the recession does not seem to affect the strength of the recovery in Europe.…”

Section: Linearity Testscontrasting

confidence: 77%

“…Hence a bounce-back effect requires that λ 1 > 0. As proposed in Bec et al [2011a], this period of extra growth may be delayed by a positive value of ℓ. Finally, its duration may vary according to the value of parameter m.…”

Section: Introducing Bounce-back Functionsmentioning

confidence: 98%

“…Beyond the parsimony of their proposed two-regime specification, it has also the desirable feature of allowing the bounce-back effect to depend on the duration and/or the depth of the previous recession, which is not the case of the multiple regimes models mentioned above. Recently, Bec, Bouabdallah and Ferrara [2011a] propose a generalization of the bounce-back functions used by Kim et al [2005] which allows for more flexible shapes of recoveries as well as for simple statistical testing of specific shapes.…”

Section: Introductionmentioning

confidence: 99%

“…Recently, Kim et al [2005] and Bec et al [2011a] have proposed extensions, within the two-regime class of MS models proposed by Hamilton [1989], which allow for the length and/or depth of each recession to influence the growth rate of output in the periods immediately following the recession. Kim et al [2005] consider three kinds of bounce-back functions, which correspond respectively to "U"-or "V"-shaped recessions, or "Depth" non-linear bounce-back models.…”

Section: Introducing Bounce-back Functionsmentioning

confidence: 99%

“…Kim et al [2005] consider three kinds of bounce-back functions, which correspond respectively to "U"-or "V"-shaped recessions, or "Depth" non-linear bounce-back models. Bec et al [2011a] develop a more general bounce-back frame, hereafter denoted BBF, which includes the "U", "V" and "D" bounce-back functions as special cases.…”

Section: Introducing Bounce-back Functionsmentioning

confidence: 99%

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The European Way Out of Recession

2012

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This paper proposes a two-regime Bounce-Back Function augmented Self-Exciting Threshold AutoRegression (SETAR) model which allows for various shapes of recoveries from the recession regime. It relies on the bounce-back effects first analyzed in a Markov-Switching setup by Kim, Morley and Piger [2005] and recently extended by Bec, Bouabdallah and Ferrara [2011]. This approach is then applied to post-1973 quarterly growth rates of French, German, Italian, Spanish and Euro area real GDPs. Both the linear autoregression and the standard SETAR without bounce-back effect null hypotheses are strongly rejected against the Bounce-Back augmented SETAR alternative in all cases but Italy. The relevance of our proposed model is further assessed by the comparison of its short-term forecasting performances with the ones obtained from a linear autoregression and a standard SETAR. It turns out that the bounce-back models one-step ahead forecasts generally outperform the other ones, and particularly so during the last recovery period in 2009Q3-2010Q4.

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Section: Linearity Testscontrasting

confidence: 77%

Section: Introducing Bounce-back Functionsmentioning

confidence: 98%