Business cycle non-linearities in UK consumption and production

Nadir �cal · Denise R. Osborn

133 citations0/0 files storedJournal of Applied Econometrics

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Monetary Policy and Economic Impact Forecasting Techniques and Applications Unemployment and Economic Growth

Abstract

This paper develops non-linear smooth transition autoregressive (STAR) models with two additive smooth transition components to capture the business cycle characteristics of UK real consumers' expenditure and industrial production. The results indicate consumption has essentially two business cycle regimes: recession and expansion. Industrial production, however, is characterized by the three regimes of recession, normal growth and high growth. The transitions describing recovery from recession are very similar for the two variables. Stochastic simulations illustrate the dynamic responses of these models and emphasize that they are locally linear. Our results also indicate that the two-transition STAR models have some forecast advantages over other specifications for periods of contraction. Copyright © 2000 John Wiley & Sons, Ltd.

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References

1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1936The General Theory of Employment, Interest and Money.1936The General Theory of Employment, Interest and Money.1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 1995Journal of the American Statistical Association 1996Impulse response analysis in nonlinear multivariate models 1988Testing Linearity Against Smooth Transition Autoregressive Models 1992Characterizing nonlinearities in business cycles using smooth transition autoregressive models

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