Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/318134 
Year of Publication: 
2014
Series/Report no.: 
BCAM Working Paper No. 1405
Publisher: 
Birkbeck, University of London, Birkbeck Centre for Applied Macroeconomics (BCAM), London
Abstract: 
I derive the first four moments of the Markov-switching VAR and use the results to reconsider the conflict between the Great Moderation and Financial Crisis literatures. In contrast to the linear model, a three-regime Markov-switching model captures the skewness and kurtosis of US GDP growth 1954-2011. However, a specification with four regimes splits the sample in 1984, a result familiar from the Great Moderation literature. The higher moments of the MSVAR, not previously studied in the literature, reveal the Great Moderation to be a trade off between variance and kurtosis. U.S. GDP growth shifts from an almost Gaussian structure 1954-84 into a pattern with low variance, negative skewness and high kurtosis. The Markov-switching model which splits the sample accurately captures the new moment structure.
Document Type: 
Working Paper

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