Regime Switching Stochastic Volatility: The Output Growth Behaviour

Year 2018, , 195 - 202, 25.04.2018

Mehmet Kenan Terzioğlu

https://doi.org/10.25287/ohuiibf.407225

Abstract

The output
volatility can cause the recession in the economy by random shocks. Growth
volatility, output variability, fluctuation in output, and business cycle
volatility are used as the output uncertainty in the literature.  Regime switching
and the stochastic volatility is combined within this paper to explain the
behaviour of output growth and its volatility. Moreover, this study
pointed out the sign and direction of the relation between output growth and
its uncertainty in Turkey as a developing country. In the scope of the study, a single
economic variable is preferred as a reference series and, although GDP is the
“reference” series that determines the situation of economic activity, monthly
industrial production index series is used instead of quarterly basis GDP
between 1987: 01-2017: 04 monthly periods.  

Keywords

Stochastic volatility, Markov regime switching model, output uncertainty, causality

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