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Beta Autoregressive Transition Markov-Switching Models for Business Cycle Analysis

Monica Billio () and Roberto Casarin ()

Studies in Nonlinear Dynamics & Econometrics, 2011, vol. 15, issue 4, 1-32

Abstract: We propose a new class of Markov-switching models useful for business cycle analysis, with transition probabilities following independent beta autoregressive processes. We study the effects of the autoregressive dynamics on the regime duration. We propose a full Bayesian inference approach and particular attention is paid to the parameters of the latent beta autoregressive processes. We discuss the choice of the prior distributions and propose a Markov-chain Monte Carlo algorithm for estimating both the parameters and the latent variables. Finally, we provide an application to the Euro area business cycle.

Date: 2011
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