Plucking models of business cycle fluctuations: Evidence from the G-7 countries

Terence C. Mills () and Ping Wang ()
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Terence C. Mills: Department of Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, U.K.
Ping Wang: Department of Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, U.K.

Empirical Economics, 2002, vol. 27, issue 2, 255-276

Abstract: Friedman's `plucking' model, in which output cannot exceed a ceiling level but is occasionally plucked downward by recessions, is tested using Kim and Nelson's formal econometric specification on output data from the G-7 countries. Considerable support for the model is obtained, leading us to conclude that during normal periods, output seems to be driven mostly by permanent shocks, but during recessions and high-growth recoveries, transitory shocks dominate. During these periods macroeconomic models that emphasise demand-oriented shocks, rather than real business cycle type models, may thus be more appropriate.

Keywords: Business cycle asymmetry; state space models; G-7 countries; Markov switching. (search for similar items in EconPapers)
Date: 2002-04-26
Note: Received: September 2000/Final Version Received: May 2001
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Citations: View citations in EconPapers (9)

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