This paper develops a multivariate regime switching monetary policy model for the US economy. To exploit a large dataset we use a factor-augmented VAR with discrete regime shifts, capturing distinct business cycle phases. The transition probabilities are modelled as time-varying, depending on a...

There is a general acceptance of the fact that a significant direct relationship between financial markets and macroeconomic variables exists, especially by considering the assertion that developed financial markets correspond to high GDP levels. This paper provides an investigation of the...