This paper investigates the relationship between permanent and transitory components of U.S. recessions in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GDP and consumption, we divide real GDP into permanent and transitory...

A large body of research suggests that uncertainty is an important factor affecting economic activity. Most earlier research, however, fails to consider the possibility that uncertainty may affect the value of new information and economic activity differently, depending upon its source. The...

In this paper, we develop a Bayesian approach to counterfactual analysis of structural change. Contrary to previous analysis based on classical point estimates, this approach provides a straightforward measure of estimation uncertainty for the counterfactual quantity of interest. We apply the...

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...

In this article, I first extend the standard unobserved-component time series model to include Hamilton's Markov-switching heteroscedasticity. This will provide an alternative to the unobserved-component model with autoregressive conditional heteroscedasticity, as developed by Harvey, Ruiz, and...

The synthesis of the dynamic factor model of Stock and Watson (1989) and the regime-switching model of Hamilton (1989) proposed by Diebold and Rudebusch (1996) potentially encompasses both features of the business cycle identified by Burns and Mitchell (1946): (1) comovement among economic...

We propose a generalization of existing empirical business cycle models that allows us to decompose recessions into permanent and transitory components. We find that the transitory component of recessions accounts for between 77% and 96% of the observed variance of monthly indicator series. Our...