Interactions between real economic and financial sides of the US economy in a regime-switching environment

摘要

This objective of this study is to examine the linkages between real (economic) and financial variables in theUnited States in a regime-switching environment that accounts explicitly for high volatility in the stock marketand high stress in financial markets. Since the linearity test shows that the linear model should be rejected, weemploy the Markov-switching VECM to examine the same objective using the Bayesian Markov-chain MonteCarlo method. The regime-dependent impulse response function (RDIRF) highlights the increasing importanceof the financial sector of the economy during stress periods. The responses and their fluctuations aresignificantly greater in the high-volatility regime than in the low-volatility regime.