Abstract
In the last decade, two business cycle models have dominated discussions and research of empirical business cycles. The first model is the Markov switching model of business cycle phases pioneered by Hamilton (1989). In this nonlinear business cycle model, cycles are composed of expansionary and contractionary phases. Empirically, this model is consistent with the classic research methodology of Burns and Mitchell (1946). The second model is the unobserved dynamic model of Stock and Watson (1989, 1991, 1993). In this linear model, cycles arise from the internal propagation mechanism of the system of equations. Econometrically, this model is consistent with the Frischian view of business cycles. Even though the model is not constructed to model business cycle expansions and contractions, the model is helpful in predicting downturns and upturns in the economy.
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Filardo, A.J., Gordon, S.F. (1999). Business Cycle Turning Points: Two Empirical Business Cycle Model Approaches. In: Rothman, P. (eds) Nonlinear Time Series Analysis of Economic and Financial Data. Dynamic Modeling and Econometrics in Economics and Finance, vol 1. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-5129-4_1
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DOI: https://doi.org/10.1007/978-1-4615-5129-4_1
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