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We analyze how the threat of a potential future regime shift affects optimal management. We use a simple general growth model to analyze four cases that involve combinations of stock collapse versus changes in system dynamics, and exogenous versus endogenous probabilities of regime shift. Prior...

By generalizing Hamiltons model of the US business cycle to a three-regime Markov-switching vector autoregressive model, this paper analyzes regime shifts in the stochastic process of economic growth in the US, Japan and Europe over the last four decades. Empirical evidence is established for...

While there has been a great deal of interest in the modelling of non-linearities and regime shifts in economic time series, there is no clear consensus regarding the forecasting abilities of these models. In this paper we develop a general approach to predict multiple time series subject to...

This paper proposes a new framework for the impulse-response analysis of business cycle transitions. A cointegrated vector autoregressive Markov-switching model is found to be a congruent representation of post-war US employment and output data. In this model some parameters change according to...

The paper examines proposals for euro bonds. The aim is to highlight the broader context of various proposals and, in particular, to assess their impact less as a solution to the problems of the current economic and financial conjuncture and, more, to focus on their long-term consequences for...

This paper attempts to provide evidence of “shift-volatility” transmission in the East Asian equity markets. By shift-volatility, we mean the volatility shifts from a low level to a high level, corresponding respectively to tranquil and crisis periods. We examine the interdependence of...

This paper investigates inflation persistence under Threshold Autoregressive (TAR) model motivated by the fact that inflation in Nepal goes through different degrees of persistence based on various regime shifts. Using monthly time series of the Consumer Price Index (CPI) from 1998:01 to...

While empirical sovereign credit risk models have portrayed default as driven mainly by economic and financial risk factors, this investigation addresses the relative importance of political risk that the empirical literature has often overlooked. A Markov-switching vector autoregressive model...

In this paper, we assess the size and power properties of Inclan and Tiao's (1994) Iterated Cumulative Sum of Squares (IT ICSS) algorithm for detecting sudden changes in volatility. We make use of the variance estimator that utilizes high, low and closing prices proposed by Rogers and Satchell...