A Markov Switching Factor-Augmented VAR Model for Analyzing US Business Cycles and Monetary Policy

Posted: 13 Jan 2017

See all articles by Florian Huber

Florian Huber

University of Salzburg

Manfred M. Fischer

Vienna University of Economics and Business - Institute for Economic Geography and GIScience, Department of Socioeconomics

Date Written: Aug 1, 2015

Abstract

This paper develops a multivariate regime switching monetary policy model for the US economy. To exploit a large dataset we use a factor-augmented VAR with discrete regime shifts, capturing distinct business cycle phases. The transition probabilities are modelled as time-varying, depending on a broad set of indicators that influence business cycle movements. The model is used to investigate the relationship between business cycle phases and monetary policy. Our results indicate that the effects of monetary policy are stronger in recessions, whereas the responses are more muted in expansionary phases. Moreover, lagged prices serve as good predictors for business cycle transitions.

JEL Classification: C30, E52, F41, E32

Suggested Citation

Huber, Florian and Fischer, Manfred M., A Markov Switching Factor-Augmented VAR Model for Analyzing US Business Cycles and Monetary Policy (Aug 1, 2015). Available at SSRN: https://ssrn.com/abstract=2898077

Florian Huber

University of Salzburg ( email )

Akademiestraße 26
Salzburg, Salzburg 5020
Austria

Manfred M. Fischer (Contact Author)

Vienna University of Economics and Business - Institute for Economic Geography and GIScience, Department of Socioeconomics ( email )

Welthandelsplatz 1, D4
Vienna, 1020
Austria

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
348
PlumX Metrics