A Markov Switching Regime Model of Malaysia Property Cycle | Science Publications

摘要

> Problem statement: Non-linear models such as the Markov Switching regime (MS) method of modelling business cycles, in principle can be used to model property cyle. Approach: The MS model can distinguish property cycle in recession and expansion phases and is sufficiently flexible to allow different relationships to apply over these phases. In this study, the Malaysian property cycle is modelled using a MS model. Results: This technique can be used to simultaneously estimate the data generating process of real GDP growth and classify each observation into one of two regimes (i.e., low-growth and high-growth regimes). Conclusions: This finding has important policy implications, since the yield spread was used to generate the time-varying probabilities of the MS model as well as the recession probabilities of the logit model. In other words, a strong relationship exists between interest rates and the business cycle, where interest rates lead the business cycle.