Plucking models of business cycle fluctuations: Evidence from the G-7 countries |
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Authors: | Terence C Mills Ping Wang |
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Institution: | (1) Department of Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, U.K. (e-mail: T.C.Mills@lboro.ac.uk; P.Wang@lboro.ac.uk), GB |
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Abstract: | Friedman's `plucking' model, in which output cannot exceed a ceiling level but is occasionally plucked downward by recessions,
is tested using Kim and Nelson's formal econometric specification on output data from the G-7 countries. Considerable support
for the model is obtained, leading us to conclude that during normal periods, output seems to be driven mostly by permanent
shocks, but during recessions and high-growth recoveries, transitory shocks dominate. During these periods macroeconomic models
that emphasise demand-oriented shocks, rather than real business cycle type models, may thus be more appropriate.
First Version Received: September 2000/Final Version Received: May 2001 |
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Keywords: | : Business cycle asymmetry state space models G-7 countries Markov switching |
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