Oil and the G7 business cycle: Friedman's Plucking Markov Switching Approach
Jae-Ho Yoon () and
No 773, Econometric Society 2004 Far Eastern Meetings from Econometric Society
To analyze whether oil price can account for the business cycle asymmetries in the G7, this paper adopts the Friedmanâ€™s Plucking Markov Switching Model to decompose G7 real GDPs into common permanent components, common transitory components, infrequent Markov Switching negative shock and domestic idiosyncratic components. The findings show that Hamiltonâ€™s 3 year net oil price increases account for 1973-75, 1980, partially 1990-1991 recessions and LNR oil price increases account for 1973-75, 1980, partially 1960, partially 1970, partially 1990-1991 recessions. These results indicate that oil price shocks have not been a principal determinant of common recessions in the G7 except two major OPEC oil price increases in 1973-1974, 1979-1980
Keywords: oil; OPEC; G7; GDP; business cycle; Friedmanâ€™s Plucking Markov Switching; permanent; transitory (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:773
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