Though Hamilton's (1989) Markov-switching model has been widely estimated in various contexts, formal testing for Markov-switching is not straightforward. Univariate tests in the classical framework by Hansen (1992) and Garcia (1998) do not reject the linear model for GDP. We present Bayesian...

The main econometric issue in testing the Lucas (1973) hypothesis in a time series context is estimation of the forecast-error variance conditional on past information. The conditional variance may vary through time as monetary policy evolves and agents are obliged to infer its present state....

Using a Bayesian model comparison strategy, we search for a volatility reduction in U.S. real gross domestic product (GDP) growth within the postwar sample. We find that aggregate real GDP growth has been less volatile since the early 1980s, and that this volatility reduction is concentrated in...

This paper investigates whether evidence for a positive relationship between stock market volatility and the equity premium is more decisive when the volatility feedback effects of large and persistent changes in market volatility are taken into account. The analysis has two components. First, a...

In Milton Friedman's model, output cannot exceed a ceiling level but occasionally is "plucked" downward by recession, implying fluctuations are asymmetric, recessions transitory, and recessions duration dependent though expansions are not. The empirical literature lends support, but formal...