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 ECO2008/29, Economics Working Papers from European University Institute

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 bivariate systems comprising U.S. stock prices and total factor productivity. The former variable is viewed as re°ecting 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)
New Economics Papers: this item is included in nep-bec, nep-cba, nep-ecm and nep-ets
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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Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2008/29

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