Working Paper: NBER ID: w21863
Authors: James D. Hamilton
Abstract: Many economic time series exhibit dramatic breaks associated with events such as economic recessions, financial panics, and currency crises. Such changes in regime may arise from tipping points or other nonlinear dynamics and are core to some of the most important questions in macroeconomics. This paper surveys the literature for studying regime changes and summarizes available methods. Section 1 introduces some of the basic tools for analyzing such phenomena, using for illustration the move of an economy into and out of recession. Section 2 focuses on empirical methods, providing a detailed overview of econometric analysis of time series that are subject to changes in regime. Section 3 discusses theoretical treatment of macroeconomic models with changes in regime and reviews applications in a number of areas of macroeconomics. Some brief concluding recommendations for applied researchers are offered in Section 4.
Keywords: macroeconomic regimes; regime shifts; economic recessions; econometric analysis; time series
JEL Codes: C32; E32; E37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic recessions (F44) | regime shifts (P39) |
| regime shifts (P39) | GDP growth (yt) (O49) |
| regime state (P16) | GDP growth (yt) (O49) |
| previous state (P30) | current regime state (P30) |
| regime shifts (P39) | average values (m1, m2) (C39) |