Markov switching models in the analysis of business cycle synchronization

Michał Bernardelli and Monika Dędys
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Monika Dędys: Szkoła Główna Handlowa w Warszawie

Collegium of Economic Analysis Annals, 2015, issue 39, 213-228

Abstract: In this paper the investigation of the possibility of using the Viterbi paths for the analysis of two-dimensional macroeconomic time series has been done. Two-dimensional Gaussian Markov–Switching model with four-state hidden Markov chain was considered. Two pairs of monthly indexes of industrial production were modelled. Industrial production of Italy and Germany was one pair under consideration and industrial production of Poland and Germany was the second one. The most likely sequence of states of the hidden Markov chain was found for each pair. The comparison of that sequence and analogous sequences determined for one-dimensional model with two-state hidden Markov chain was done. The results of comparison suggests that four-state Viterbi path provides more valuable information about business cycle synchronization of two economies, than two separate two-state Viterbi paths.

Keywords: Markov switching models; Viterbi path; business cycle synchronization (search for similar items in EconPapers)
JEL-codes: C63 E27 E37 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:annals:i:39:y:2015:p:213-228

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