This paper investigates the nature of business cycle asymmetry using a dynamic factor model of output, investment, and consumption. We first identify a common stochastic trend and a common transitory component by embedding the permanent income hypothesis within a simple growth model. We then...

Using Bayesian tests for a structural break at an unknown break date, we search for a volatility reduction within the post-war sample for the growth rates of U.S. aggregate and disaggregate real GDP. We find that the growth rate of aggregate real GDP has been less volatile since the early...

In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary policy rule, by employing ex-post data. A Heckman-type (1976) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into...

In this paper, we provide a unified framework for LIML (limited information maximum likelihood) IV (instrumental variables) estimation to deal with endogeneity problems in the time-varying parameter models. For this purpose, we derive a Heckman-type (1976) two-step maximum likelihood estimation...

This paper provides a unified framework for a two-step MLE procedure to deal with the problem of endogeneity in Markov-switching regression models. Two important issues are considered. First, a consistent estimation of the Markov-switching regression equation of interest is considered. Second,...

The paper estimates a model for the real U.S./U.K. exchange rate. The Kalman filter is used to identify a permanent and transitory component. We find the variance of the transitory component shifts among three states according to a Markov-switching process. The model is estimated by Gibbs...