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RESEARCH PRODUCT

ANALYSIS OF BUSINESS CYCLES CONVERGENCE IN A SWITCHING REGIME VIEW

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In this paper I analyzed the convergence between Romanian and Euro Zone`s business cycles using a Switching approach. Considering the evolution of final consumption expenditure as proxy for the business cycles, the underlying study is calibrated on the second key feature of Burns and Mitchell`s (1946) definition about business cycles, namely the cycles are divided and also treated differently for cases of expansionary and downward regimes. Therefore a cyclical convergence between Romanian and Euro Zone`s business cycles is characterized by synchronization in the occurrence of different regimes (states) and also in the time for which these regimes are standing up. For this purpose, I called a Markov Switching model in order to estimate the probability of being in economic expansion or recessions for both business cycles. In that sense, I use both a Hamiltonian approach and a standard AR parametisation for dependent variable`s dynamics. Additionally, the Markov Switching analysis was completed by a Bayesian Switching approach in order to cross check the statistical significance of resulted estimates. Also other econometric and statistical methods were engaged to verify the accuracy of obtained information.