Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle

Chang-Jin Kim () and Charles Nelson

The Review of Economics and Statistics, 1999, vol. 81, issue 4, 608-616

Abstract: We hope to answer three questions: Has there been a structural break in postwar U.S. real GDP growth towards stabilization? If so, when? What is the nature of this structural break? We employ a Bayesian approach to identify a structural break at an unknown changepoint in a Markov-switching model of the business cycle. Empirical results suggest a break in GDP growth toward stabilization, with the posterior mode of the break date at 1984:1. Furthermore, we find a narrowing gap between growth rates during recessions and booms that is at least as important as any decline in the volatility of shocks. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 1999
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