Identification of business cycles and the Great Moderation in the post-war U.S. economy

摘要

In this paper, a 4-state Markov-switching model based on a Bayesian framework is applied to study the post-war U.S. economy, where the 4 states are designed to represent the expansions and contractions in the non-Great Moderation period and in the Great Moderation period. We propose a simple yet efficient method to deal with the label switching problem in the MCMC simulation. Our model successfully identifies the business cycles and the Great Moderation in the post-war U.S. economy at the same time. Furthermore, our model performs better in the state identification than models based on traditional methods do. (c) 2020 Elsevier B.V. All rights reserved.