Simultaneously modeling the volatility of the growth rate of real GDP and determining business cycle turning points: Evidence from the U.S., Canada and the UK

Abstract

This paper investigates the volatility of the rates of output growth for the U.S., Canada and the UK. We empirically characterize the volatility of the growth rate of real GDP and, at the same time, we hope we can successfully identify business cycle turning points. The empirical results show that there have been structural changes in the volatility of output growth for these countries. While the Markov Switching heteroscedasticity model can capture this feature very well for all three countries, the modified Markov Switching heteroscedasticity model introduced here not only performs extremely well in modeling the volatility behavior of the growth rate of real GDP, but, at the same time, it also successfully identifies business cycle peak and trough dates.