Working Paper Series no. 321: The possible shapes of recoveries in Markov-switching models

Abstract

This paper explores the various shapes the recoveries may exhibit within a Markov-Switching model. It relies on the bounce-back effects first analyzed by Kim, Morley and Piger (2005) and extends the methodology by proposing i) a more flexible bounce-back model, ii) explicit tests to select the appropriate bounce-back function, if any, and iii) a suitable measure of the permanent impact of recessions. This approach is then applied to post-WWII quarterly growth rates of US, UK and French real GDPs.

Frédérique Bec, Othman Bouabdallah and Laurent Ferrara
March 2011

Classification JEL : E32, C22

Keywords : Markov-Switching models, bounce-back effects, asymmetric business cycles.