Interactions between eurozone and US booms and busts: A Bayesian panel Markov-switching VAR model

摘要

Interactions between eurozone and United States booms and busts and among majoreurozone economies are analyzed by introducing a panel Markov-switching VAR model.The model is well suitable for a multi-country cyclical analysis and accommodateschanges in low and high data frequencies and endogenous time-varying transitionmatrices of the country-specific Markov chains. The transition matrix of each Markovchain depends on its own past history and on the history of other chains, thus allowingfor modelling the interactions between cycles. An endogenous common eurozone cycleis derived by aggregating country-specific cycles. The model is estimated using asimulation based Bayesian approach in which an eficient multi-move algorithm isdefined to draw time-varying Markov-switching chains. Using real and financial dataon industrial production growth and credit spread for all countries, our main empiricalresults are as follows. Recession, slow recovery and expansion are empirically identifiedas three regimes with slow recovery becoming persistent in the eurozone in recent yearsdiffering from the US. US and eurozone cycles are not fully synchronized over the 1991-2013 period, with evidence of more recessions in the eurozone, in particular during the90's. Larger synchronization across regions occurs at beginning of the financial crisisbut recently more heterogeneity takes place.Cluster analysis yields a group of core countries: Germany, France and Netherlands and a group of peripheral countries Spain and Italy. Reinforcement e ects in the recession probabilities and in the probabilities ofexiting recessions occur for both eurozone and US with substantial di erences in phasetransitions within the eurozone. Finally, credit spreads provide accurate predictivecontent for business cycle uctuations. A credit shock results in statistically significantnegative industrial production growth for several months in Germany, Spain and US.Our empirical result may serve as important information for the specification of acoordinated policy between the eurozone and the US and within the eurozone.