Business cycle non-linearities in UK consumption and production
Article first published online: 20 MAR 2000
Copyright © 2000 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 15, Issue 1, pages 27–43, January/February 2000
How to Cite
Öcal, N. and Osborn, D. R. (2000), Business cycle non-linearities in UK consumption and production. J. Appl. Econ., 15: 27–43. doi: 10.1002/(SICI)1099-1255(200001/02)15:1<27::AID-JAE552>3.0.CO;2-F
- Issue published online: 20 MAR 2000
- Article first published online: 20 MAR 2000
- Manuscript Revised: 10 JUN 1999
- Manuscript Received: 13 AUG 1997
This paper develops non-linear smooth transition autoregressive (STAR) models with two additive smooth transition components to capture the business cycle characteristics of UK real consumers' expenditure and industrial production. The results indicate consumption has essentially two business cycle regimes: recession and expansion. Industrial production, however, is characterized by the three regimes of recession, normal growth and high growth. The transitions describing recovery from recession are very similar for the two variables. Stochastic simulations illustrate the dynamic responses of these models and emphasize that they are locally linear. Our results also indicate that the two-transition STAR models have some forecast advantages over other specifications for periods of contraction. Copyright © 2000 John Wiley & Sons, Ltd.