Volatility dynamics of the US business cycle: A multivariate asymmetric GARCH approach

Kin-Yip Ho, Albert Tsui and Zhaoyong Zhang

Mathematics and Computers in Simulation (MATCOM), 2009, vol. 79, issue 9, 2856-2868

Abstract: Most empirical investigations of the business cycles in the United States have excluded the dimension of asymmetric conditional volatility. This paper analyses the volatility dynamics of the US business cycle by comparing the performance of various multivariate generalised autoregressive conditional heteroskedasticity (GARCH) models. In particular, we propose two bivariate GARCH models to examine the evidence of volatility asymmetry and time-varying correlations concurrently, and then apply the proposed models to five sectors of Industrial Production of the United States. Our findings provide strong evidence of asymmetric conditional volatility in all sectors, and some support of time-varying correlations in various sectoral pairs. This has important policy implications for government to consider the effective countercyclical measures during recessions.

Keywords: Constant correlations; US business cycle non-linearities; Index of industrial production; Multivariate asymmetric GARCH; Varying-correlations (search for similar items in EconPapers)
JEL-codes: E32 E37 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (10)

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Journal Article: Volatility Dynamics of the UK Business Cycle: a Multivariate Asymmetric Garch Approach (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:79:y:2009:i:9:p:2856-2868

DOI: 10.1016/j.matcom.2008.08.015

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