A Markov switching common factor is used to drive a dynamic factor model for important macroeconomic variables in eight countries. Bayesian estimation of the model is based on Markov chain Monte Carlo simulation methods which yield inferences about the unobservable path of the common factor, the...

This paper estimates a switching autoregressive conditional heteroskedastic time series model for returns on the daily German stock market index. Volatility clustering is captured by persistent periods of different volatility levels and by the dependence on past innovations. We introduce a...

Using a panel of Austrian bank data we show that the lending decisions of the smallest banks are more sensitive to interest rate changes, and that for all banks, sensitivity changes over time. We propose to estimate the groups of banks that display similar lending reactions by means of a group...

We estimate Markov switching vector autoregressive systems for loans to firms and loans to households to investigate their relationship to interest rates and investment and consumption, respectively. We find evidence for different reactions of lending to shocks in real variables and interest...

If firms borrow working capital to finance production, then nominal interest rates have a direct influence on in inflation dynamics, which appears to be the case empirically. However, interest rates may only partly mirror the cost of working capital. In this paper we explore the role of bank...

We analyse the interaction between credit and asset prices in the transmission of shocks to the real economy using a Markov switching vector autoregression. While we confirm the existence of different regimes, we find no evidence of financial imbalances coming from mutually reinforcing effects...

This paper analyzes the recently documented instability of money demand in theeuro area in the framework of a Markov switching trend model. First, we consider astandard °exible price model with stable money demand, rational expectations, andan exogenous income-money ratio which follows a Markov...

We analyse the role of euro area M3 as an indicator for future inflation. We analyse the short and long run relationship between money growth and inflation in an error correction framework taking into account the output gap and short and long term interest rates. We find robust cointegration...

Two Bayesian sampling schemes are outlined to estimate a K-state Markov switching model with time-varying transition probabilities. The multinomial logit model for the transition probabilities is alternatively expressed as a random utility model and as a difference random utility model. The...