Business Cycle Phases and Their Transitional Dynamics in the Euro Area: A Markov-Switching Approach with Time-Varying Transition Probabilities
Abstract: This thesis studies business cycle synchronisation in the euro area by examining business cycle phases and how their transitional dynamics are affected by bilateral spillovers. By using a two-state and a three-state Markov-switching model with time-varying transition probabilities it is possible to show that certain EA-12 countries' business cycles are informative in regards to detecting business cycle phase changes in other EA-12 countries. These business cycles are frequently informative of the transitional dynamics during expansion phases, whilst they are rarely informative throughout the entire business cycle. This means that spillovers between countries vary across the business cycle and that business cycle synchronisation is perhaps stronger during times of economic stability.
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