Identification of business cycles and the Great Moderation in the post-war U.S. economy

Yu Jiang

Economics Letters, 2020, vol. 190, issue C

Abstract: In this paper, a 4-state Markov-switching model based on a Bayesian framework is applied to study the post-war U.S. economy, where the 4 states are designed to represent the expansions and contractions in the non-Great Moderation period and in the Great Moderation period. We propose a simple yet efficient method to deal with the label switching problem in the MCMC simulation. Our model successfully identifies the business cycles and the Great Moderation in the post-war U.S. economy at the same time. Furthermore, our model performs better in the state identification than models based on traditional methods do.

Keywords: Bayesian; Business cycles; Great Moderation; Label switching; Identification of states; Markov-switching model (search for similar items in EconPapers)
JEL-codes: C11 E32 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:190:y:2020:i:c:s0165176520300732

DOI: 10.1016/j.econlet.2020.109072

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