Business Cycles Across Space and Time
47 Pages Posted: 26 Mar 2019
Date Written: 2019-01-22
We study the comovement of international business cycles in a time series clustering model with regime-switching. We extend the framework of Hamilton and Owyang (2012) to include time-varying transition probabilities to determine what drives similarities in business cycle turning points. We find four groups, or â€œclustersâ€�, of countries which experience idiosyncratic recessions relative to the global cycle. Additionally, we find the primary indicators of international recessions to be fluctuations in equity markets and geopolitical uncertainty. In out-of-sample forecasting exercises, we find that our model is an improvement over standard benchmark models for forecasting both aggregate output growth and country-level recessions.
Keywords: Markov-switching, time-varying transition probabilities, cluster analysis
JEL Classification: C11, C32, E32, F44
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