Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147301
Authors: 
Balcilar, Mehmet
Gupta, Rangan
Segnon, Mawuli
Year of Publication: 
2016
Citation: 
[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 10 [Issue:] 2016-27 [Pages:] 1-20
Abstract: 
This paper analyzes the performance of the monthly economic policy uncertainty (EPU) index in predicting recessionary regimes of the (quarterly) U.S. GDP. In this regard, the authors apply a mixed-frequency Markov-switching vector autoregressive (MF-MS-VAR) model, and compare its in-sample and out-of-sample forecasting performances to those of a Markov-switching vector autoregressive model (MS-VAR, where the EPU is averaged over the months to produce quarterly values) and a Markov-switching autoregressive (MS-AR) model. Their results show that the MF-MS-VAR fits the different recession regimes, and provides out-of-sample forecasts of recession probabilities which are more accurate than those derived from the MS-VAR and MS-AR models. The results highlight the importance of using high-frequency values of the EPU, and not averaging them to obtain quarterly values, when forecasting recessionary regimes for the U.S. economy.
Subjects: 
Business cycles
economic policy uncertainty
mixed frequency
Markovswitching VAR models
JEL: 
E32
E37
C32
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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