Contents of the volume

2016, Volume 69 - Issue 1

ISSN: 2499-8265
RSS feed citation: at CitEc
Publication date: 23 February 2016

EFFECT OF RECENT U.S. MONETARY POLICY ON THE BALANCE OF TRADE.

Deergha Raj Adhikari

Read the article

CAN DEBT CEILING AND GOVERNMENT SHUTDOWN PREDICT US REAL STOCK RETURNS? A BOOSTRAP ROLLING WINDOW APPROACH

Goodness C. Aye, Mehmet Balcilar, Ghassen El Montasser, Rangan Gupta, Nangamso C. Manjezi

Read the article

CHARACTERISING THE SOUTH AFRICA BUSINESS CYCLE: IS GDP DIFFERENCE-STATIONARY OR TREND-STATIONARY IN A MARKOV-SWITCHING SETUP?

Mehmet Balcilar, Rangan Gupta, Charl Jooste, Omid Ranjbar

Read the article

IS THERE A TWO-SPEED EUROPE ALSO IN THE WELL-BEING?

Enrico Ivaldi, Guido Bonatti, Riccardo Soliani

Read the article

Genoa Chamber of Commerce
Economia Internazionale / International Economics

< Back

Corresponding author

Mehmet BALCILAR, Department of Economics, Eastern Mediterranean University, Fa-magusta, Turkish Republic of Northern Cyprus, via Mersin 10, Turkey

Co-authors

Rangan GUPTA, Department of Economics, University of Pretoria, Pretoria, South Africa

Charl JOOSTE, Department of Economics, University of Pretoria, Pretoria, South Africa

Omid RANJBAR, Ministry of Industry, Mine and Trade, Tehran, Iran

Characterising the South Africa Business Cycle: Is GDP Difference-Stationary or Trend-Stationary in a Markov-Switching Setup?

Pages

33-44

Abstract

We test for a unit root in de-trended GDP in a two-state Markov switching specification using a modified Augmented Dickey-Fuller test. Our results show that a first difference GDP specification is preferred over the de-trended specification. In addition, the null of differencestationary GDP cannot be rejected. By implication, shocks to GDP are permanent which validates specifying trend GDP with a stochastic component – something that is inherently assumed in a number of research papers that estimate potential GDP growth and that model GDP in general equilibrium specifications.  

JEL classification

C22, C25, E32

Keywords

Markov-Switching, Difference-Stationary, Trend-Stationary

Index

  1. Introduction
  2. Methodology
  3. Results
  4. Conclusion

Bibliography

Anvari, V., N. Ehlers and R. Steinbach (2014), “A Semi-structural Approach to Estimate South Africa’s Potential Output”, South African Reserve Bank Working Paper Series, WP/14/08.

Bosch, A and F. Ruch (2013), “An Alternative Business Cycle Dating Procedure for South Africa”, South African Journal of Economics, 81(4), 491-516.

Camacho, M. (2011), “Markov-switching Models and the Unit Root Hypothesis in Real U.S. GDP”, Economics Letters, 112(2), 161-164.

Cochrane, J.H. (1988), “How Big is the Random Walk in GNP?”, The Journal of Political Economy, 96(5), 893-920.

Dickey, D.A. and W.A. Fuller (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, 74(366), 427-431.

Du Plessis, S.A. (2006), “Reconsidering the Business Cycle and Stabilisation Policies in South Africa”, Economic Modelling, 23(5), 761-774.

Ehlers, N., L. Mboji and M.M. Smal (2013), “The Pace of Potential Output Growth in the South African Economy”, South African Reserve Bank Working Paper Series, WP/13/01.

Farmer, R. (2015). “There is no Evidence that the Economy is Self-correcting”, Roger Farmer’s Economic Window, 16 April. Available at: (http://rogerfarmerblog.blogspot.com/2015/04/there-is-no-evidence-that-economy-is.html).

Hall, S.G., Z. Psaradakis and M. Sola (1999), “Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test”, Journal of Applied Econometrics, 14(2), 143-154.

Hamilton, J.D. (1989), “A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle”, Econometrica, 57(2), 357-384.

Hosseinkouchack. M. and M.H. Wolters (2013), “Do Large Recessions Reduce Output Permanently?”, Economics Letters, 121(3), 516-519.

Moolman, E. (2007), “A Markov-switching Regime Model of the South African Business Cycle”, Economic Modelling, 21(4), 631-646.

Nelson, C.H., J. Piger and E. Zivot (2001), “Markov Regime Switching and Unit Root Tests”, Journal of Business and Economic Statistics, 19(4), 404-415.

Tillman, P. and M.H. Wolters (2015). “The Changing Dynamics of US Inflation Persistence: A Quantile Regression Approach”, Studies in Nonlinear Dynamics and Econometrics, 19(2), 161-182.