Stock Prices and Economic Fluctuations: A Markov Switching Structural Vector Autoregressive Analysis

Markku Lanne and Helmut Luetkepohl ()
Authors registered in the RePEc Author Service: Helmut Lütkepohl ()

No CESifo Working Paper No. 2407, CESifo Working Paper Series from CESifo Group Munich

Abstract: The role of expectations for economic fluctuations has received considerable attention in recent business cycle analysis. We exploit Markov regime switching models to identify shocks in cointegrated structural vector autoregressions and investigate different identification schemes for bi-variate systems comprising U.S. stock prices and total factor productivity. The former variable is viewed as reflecting expectations of economic agents about future productivity. It is found that some previously used identification schemes can be rejected in our model setup. The results crucially depend on the measure used for total factor productivity.

Keywords: cointegration; Markov regime switching model; vector error correction model; structural vector autoregression; mixed normal distribution (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Stock Prices and Economic Fluctuations: A Markov Switching Structural Vector Autoregressive Analysis (2008)
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