Identifying regime switches using causal recipes

Abstract

This study proposes a new method to identify regime switches in a time series. First, the method uses fuzzy set/qualitative comparative analysis (fsQCA) instead of quantitative methods because studies show that fsQCA outperforms quantitative methods. The new method is unique in that the method examines causes for regime switches instead of outcome as in previous studies. FsQCA explores the relationships between relevant antecedents of energy consumption and gross domestic product as the outcome. Historical events validate the results, which demonstrate that the method successfully identifies regime switches.