10.4225/03/59fbb506bca11
Shami, Roland G.
Roland G.
Shami
Forbes, Catherine S.
Catherine S.
Forbes
Non-linear Modelling of the Australian Business Cycle Using a Leading Indicator
Monash University
2017
Structural model
Markov switching regime
Gibbs sampling
Business cycle
Leading indicator
2002
1959.1/2322
monash:2322
2017-11-03 00:15:01
Journal contribution
https://bridges.monash.edu/articles/journal_contribution/Non-linear_Modelling_of_the_Australian_Business_Cycle_Using_a_Leading_Indicator/5566990
This paper develops a new non-linear model to analyse the business cycle by exploiting the relationship between the asymmetrical behaviour of the cycle and leading indicators. The model proposed is an innovations form of the structural model underlying simple exponential smoothing that is augmented by a latent Markov switching process. Furthermore, the probabilities that drive the Markov process vary with the growth of the leading indicator. The proposed model is used to analyse the Australian business cycle using the gross domestic product as a proxy and the industrial materials prices index as the exogenous leading indicator influencing the transition probabilities. Model parameters are estimated using a Gibbs sampling algorithm and subsequently used for forecasting purposes.